The economic contrast of Egypt and Algeria

In his book The End of the Free Market (the thesis of which is not nearly as dramatic as the name implies), author Ian Bremmer contrasts the economic approaches taken by Egypt and Algeria. He begins with Egypt, a country traditionally known for its embrace of central planning:

In the summer of 2004, things began to change. [President Hosni] Mubarak appointed Egypt's first technocratic government, led by Prime Minister Ahmed Nazif. With Finance Minister Youssef Boutros-Ghali and the head of the newly created investment ministry, Mahmoud Mohieldin, allies of Mubarak's market-friendly son Gamal began reshaping Egypt's economic policies...For the first time since 1952, those in charge of crafting economic policy in Egypt are ideologically committed to market liberalization.

...Under their direction, the Egyptian government has begun to sell off major state assets. In 2002, foreign direct investment in the country remained at about $500 million. By 2008, that figure pushed past $13 billion. In 2006, an Italian bank was allowed to buy 80 percent of the Bank of Alexandria, making it the first state-owned financial institution to be privatized. The regime has since adopted a more market-friendly approach to regulation, cut corporate taxes, and streamlined investment policies.

Crucially, since the onset of the financial crisis, Egyptian authorities have reaffirmed their commitment to free-market policies. As global recession took hold in 2009, Mubarak chose not to fire anyone within the economic team, a decision interpreted by investors inside and outside the country as a vote of confidence in reform.

Wikipedia sheds further light on these reform:

Until 2003, the Egyptian economy suffered from shortages in foreign currency and excessively elevated interest rates. A series of budget reforms were conducted in order to redress weaknesses in Egypt's economic environment and to boost private sector involvement and confidence in the economy.

Major fiscal reforms were introduced in 2005 in order to tackle the informal sector which according to estimates represents somewhere between 30% to 60% of GDP. Significant tax cuts for corporations were introduced for the first time in Egyptian history. The new Income tax Law No 91 for 2005 reduced the tax rate from 40% to 20%. According to government figures, tax filing by individuals and corporations increased by 100%.

Many changes were made to cut trade tariffs. Among the legislators' goals were tackling the black market, reducing bureaucracy and pushing through trade liberalization measures. Amendments to Investment and Company law were introduced in order to attract foreign investors. For example, the number of days required for establishing a company was dramatically reduced.

Significant improvement to the domestic economic environment increased investors' confidence in Egypt. The Cairo & Alexandria Stock Exchange is considered among the best ten emerging markets in the world. The changes to the policy also attracted increased levels of foreign direct investment in Egypt. According to the UN Conference on Trade and Development's World Investment Report, Egypt was ranked the second largest country in attracting foreign investment in Africa.

Bremmer then looks at Algeria:

Since winning independence from France in 1962, Algeria's government has dominated its economy, directing economic policy via Soviet-style five-year plans. The country's political leadership trumpets its refusal to embrace globalization as a mark of discipline, a symbol of integrity, and a badge of honor -- seizing on the global recession as vindication of its wisdom. This statist tradition is driven by two publicly popular commitments. First, the regime claims its embrace of socialism reflects its determination to promote social justice. Second, the state pledges never to leave the people of Algeria at the mercy of predatory foreign investors.

President Abdelaziz Bouteflika loosened state control of the oil and gas, telecom, and real-estate sectors between 2002 and 2005, because he saw opportunities to grow the economy beyond hydrocarbons. But as he embarked on the politically risky path of abolishing constitutional term limits to give himself an opportunity to serve a third presidential term, he reverted to a state-dominated approach...Algeria features more than one thousand state-owned companies, firms that produce everything from ceramics to mattresses.

Now let's contrast the results of each by looking at GDP figures over the last 20 years:

Free the market and growth will follow. It's a lesson many US politicians would be wise to heed.

Update: It's perhaps also worth noting that since 1990 Algeria's population has grown at a 36 percent clip compared to Egypt at 30 percent, which would seem to make the difference in GDP growth even more lopsided in Egypt's favor.