I just returned from a remarkable conference in Cairo, Egypt, put on jointly by the Egyptian Center for Economic Studies and Instituto Libertad y Democracia. ILD is led by Peruvian economist and Empower America associate Hernando de Soto, whose two books, "The Mystery of Capital" and "The Other Path," are seminal works for understanding and solving world poverty and terrorism in the 21st century.
The conference was the culmination of a joint study by the two organizations in which they developed concrete proposals on how to integrate Egypt's informal sector (what usually is referred to loosely as the "underground economy") into the formal economy. The project was conducted with the support and assistance of Egypt's Finance Ministry and would not have been possible without the personal commitment of Finance Minister H.E. Medhat Hassanein and the Mubarak government.
The particular focus of the ECES/ILD study was on how to bring the extralegal business and real estate sectors above ground and onto the books, thus turning "dead capital" into "live capital." If successful, Egypt will be the first country in the Middle East to make these reforms, and it will set a precedent and serve as an example and template for the whole Arab and Islamic world. At the conclusion of the conference, I invited the leaders to Washington in the spring to help make the case for taking these reforms beyond Egypt into Iraq, Afghanistan and beyond.
In a nutshell, the study concluded that, "Under the coarse mask of extralegal activities lies a mass of talented and hardworking people capable of creating value out of practically nothing who hold the potential for making Egypt a rich and powerful country." Egypt has approximately 1.4 million extralegal entrepreneurs, who comprise 82 percent of Egypt's entire entrepreneurial class.
The extralegal economy employees some 8 million Egyptians, and the value of business and real estate assets in extralegal enterprises totals almost $30 billion. All told, 92 percent of the Egyptian population holds its private real estate assets extralegally, thus preventing people from leveraging property into capital. In round numbers, this "dead capital" adds up to almost $250 billion.
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