Egypt: The Economy Is Better Off Than the Egyptians

Three years after signing an agreement with the IMF worth 12 billion dollars (9.3 billion pounds sterling), the Egyptian economy is showing respectable results in many sectors, such as growth, inflation and unemployment but the population has hardly benefited from this. The greediness of the generals and misuse of subsidies have reduced two thirds of the population to abject poverty.

On Tuesday 29 October 2019 in Washington, DC, addressing his G20 counterparts, Mohamed Maait, 57,— a pure product of the Egyptian bureaucracy— minister of finance since last year—was more than a little proud to be able to boast of the accomplishments of his country’s economy: a growth-rate of nearly 6% over the last year. A figure which rivals that of China and makes the other 23 ministers of the group of developing countries green with envy. With rare exceptions these are stagnating desperately in the shallows, with gains of scarcely 1–2% or even less for the arrogant Gulf potentates who have come to know the disadvantages of negative growth rates with the drop in oil prices.

Cairo has more good news to tell; inflation has gone down, far below the +30% rate of three years ago when, in November 2016, Marshal Abdel Fattah Al-Sisi finally signed, after years of stalling by his predecessors, a standby agreement with Christine Lagarde, General Director of the International Monetary Fund (IMF). In exchange for a three-year loan of 12 billion dollars (9.3 billion pounds sterling) to be paid at a rate of a billion per quarter, Egypt promised to devalue its currency, reduce its budgetary deficit, stiffen its monetary policies and go some way towards liberalising its economy. Today, the yearly rate of inflation is around 8 to 9%, the foreign currency reserves are on the rise, public finances are in better shape, the public debt is under control and the service of the debt is no longer seen to be unbearable.

And yet Egyptians, in their immense majority, do not have the impression that their lot has improved. In fact, the general feeling is light—years away from these results. How to explain this gap? As recently as the beginning of October, a few thousand protestors dared to defy a ruthless repression which resulted in 4,000 arrests according to the NGOs. But, of course, people are indignant as they gaze on those palaces worthy of the Arabian Nights, built to house the Cairo kleptocracy when tens of millions of Egyptians are crammed into uninhabitable neighbourhoods, to rot in degrading tenements. But the anger of Egyptians goes much deeper, and is fuelled by serious grievances.

One third of the population lives in poverty

Top of the list comes poverty. According to a survey conducted by an Egyptian agency, 32.5% live in unbearable poverty. Is considered poor a person earning less than $1.90 (£1.47) per day, i.e. around $700 (£542) per year. At least 30 million Egyptians suffer from this state of misery, scarcely better off than a citizen of the Central African Republic, a country where war has been raging for the last thirty tears! Since 2016, poverty has risen by over 11% in the country’s largest cities (Cairo, Alexandria, Port Said, Suez) and rural areas are scarcely better off. Half the population has to make do with 17 to 18% of the GDP according to the World Inequality Database (WID) created by a specialist on this issue, Thomas Piketty. The same amount goes to the richest 1%!

Of course the poor do have access to subsidies to feed themselves, light their homes and get about; bread, electricity and petrol are in theory cheaper for them thanks to those well-known and much-reviled subsidies. That is, provided you qualify, and the obstacles are many and laughable: newborn infants are denied them, elderly pensioners are easily struck off the register, owning a mobile phone can be enough to make you ineligible. The food produce reserved for the poor is more expensive than on the open market, a litre of olive oil costs 26% more, a kilo of sugar 11%. Besides which inflation is simply not taken into account. Until recently, the poor were subsidised in kind. From now on, they get money. In 2016–2017 inflation was higher than 30% for many months and food subsidies were not increased by as much, quite the contrary.

Greater control over the cash budget was achieved by reducing the subsidy burden in government spending. Since the 2017–2018 finance law, food subsidies were cut by 44% and the number of recipients fell by 3 million. The intended result was achieved and now the budget has made room for another expenditure, paying their interests to carry traders. This is a new “race” of financiers who thrive on the yield spread between the money they borrow in New York or London at less than 1% and what they lend at over 6% to the Egyptian authorities to finance their deficit, which continues to run at about 5% of the GDP. Today the service of the debt swallows up 70% of the tax money paid by the population. Making the poor poorer to make the rich richer. . .

Disastrous effects of the “khaki-coloured” companies

With one of its favourite hobby horses, privatisations, the FMI was less successful. Just one tobacco company was put up for sale and two banks undertook a modest opening up of their capital.

Why such restraint? It is because the so-called khaki-coloured companies, in which the generals are stockholders, represent a majority of the country’s GDP.

The Egyptian army, considering the chronic penury of the National Treasury, pays its retired senior officers mediocre pensions. To make up for this, generals nearing the end of their career are given positions in public companies. The consequence of this is fatal for the economy since competent civilians are shut out. These military companies systematically flaunt the law, limit the competition from civilians in their sector, monopolise bank loans, avoid public tenders, and get rid of competitors with extra-economic stratagems such as happened in the concrete business when they forced the withdrawal of an Italian transnational firm.

As an indication of the generals’ influence under Marshal Sisi’s military regime, the IMF had to agree to exempt the military companies from a VAT increase provided for in the November 2016 agreement. All of which is responsible for poor productivity, prices higher than the world market and a dramatic deficit of. job creation

Employment stagnation

Every year, 2.5 million job-seekers enter the employment market and for the most part join the ranks of a huge reserve army of labour, people who are either unemployed or hold odd jobs which pay next to nothing. Private companies are practically not hiring at all while the informal economy does recruit but with no guarantees whatsoever. In spite of a record devaluation of the Egyptian pound, whose value was cut in half, foreign investments were not forthcoming, contrary to what has occurred elsewhere in similar circumstances. Only the hydrocarbons sector has proven attractive to transnationals such as the Italian oil company ENI which has developed a huge natural gas deposit and made Egypt self-sufficient. But nothing like that has taken place in manufacturing or the service industry, foreign direct investments (FDI) have been practically non-existent and the promise of job creation has not been kept. The Minister of finance is aware of the failure of his strategy and has promised to ask the IMF for a new loan in March 2020, precisely in order to develop investment and employment.

Faced with shrinking subsidies and the lack of jobs, young Egyptians have good reason to listen to Ali Mohamed, a businessman who has found refuge in Madrid. He denounces the scandals of the current regime, and is seen as Marshal Sissi’s rival. The Tunisian precedent where an obscure college professor has just won the presidential election with 72% of the vote ought to give Cairo food for thought.