The shadow economy, or the informal economy, is what academics call that invisible part of any nation’s economy. It is embodied in figures like Umm Radha, who sells guavas at the al-Moneera market, or Fathi, a mechanic residing in Ezbet al-Walda in Helwan, who refuses to register his workshop in official records for fear of the oppressive and arbitrary tax system, or sometimes due to the corruption of those tasked with collecting the dues owed.
Some might view this as a form of backwardness, but time has proven that this sector—representing 52% of Egypt’s economy—served as the economic cushion that protected Egypt from the shock of the 2008 economic crisis. It also saved the country from a harsh collapse during the 18 days before Mubarak’s resignation, when most formal economic activities were virtually paralysed. Yet, no one complained of hunger or a painful shortage of staples like beans or falafel.
The question here is: should we continue relying on these cushions, shielding ourselves behind our inability to organise economic life? I believe the answer is no.
Despite the emotional debt we owe to this cushion for always supporting us in tough times, it simultaneously blinds us to nearly half of the Egyptian economy. This leaves us perpetually unaware or uncertain about what is truly happening on the ground, regardless of how precise our plans and strategies may seem. The larger the shadow economy and the more inflated this benevolent cushion in any country, the greater the distortion of most economic indicators that are supposed to guide us forward. In the Egyptian model, these indicators have devolved into something akin to al-Sayyida’s moulid on its grand night, where chickpeas mix with tiger nuts, and you grab what you can with no rhyme or reason. No rational logic would accept an economic decision-maker seeing only half of what’s being prepared in the economic kitchen.
We are indeed grateful to all the economic cushions that have saved us in the past and continue to do so. However, if we wish to stand on our own feet like mature adults, we must set them aside after gradually reducing their size as much as possible through the hands of the economic upholsterer. No country has fully eliminated its shadow economy, no matter how advanced its economic system. Even there, you still find someone like Joe the plumber fixing a kitchen tap and pocketing the payment without issuing a receipt for Jessica, who couldn’t care less.
To compress this cushion and shed light on the obscured parts of the economy, various means and strategies must be employed, ensuring that the vulnerable segment of society—who may have saved the economy at times by preventing its collapse and at others by not burdening the job market of a country already suffering from high unemployment and poverty rates—is not harmed.
One critical strategy to achieve this involves registering small and microeconomic entities within the state framework, through initiatives like the ‘one-person company’ system adopted by the Italians, who faced a similar problem decades ago. The state must encourage this economically fragile sector to cooperate with such a system, fostering trust between them and the post-revolutionary system. It must assure them that this process is not aimed at placing them under the yoke of tax collection. On the contrary, the state could even provide them with some form of training support, which would undoubtedly yield positive returns not only for them and their families but also for the economy as a whole. This would enable decision-makers to finally observe this hidden sector and mature beyond the protection of the cushion, moving towards faster and more stable strides towards real, well-thought-out growth.
This article is originally published by AlBorsa in Arabic and later AI-translated by South Push.