Analysis |

What Fires Revealed About Egypt's Economic Disparity

Failings within Egypt's electricity grid and education system demonstrate the enormous gap between the improvement in Egypt’s economic situation and the state of its public services

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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Protests rocked the streets of Egypt for months during the 2011 Arab Spring.
Protests rocked the streets of Egypt for months during the 2011 Arab Spring. Credit: AMR ABDALLAH DALSH / REUTERS
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

The fire that raged at the end of December in the Badrawy Hospital in Alexandria no longer impressed any of the residents. It was the third fire that had occurred in the hospital in half a year, and after seven patients in the coronavirus war died in the previous fire in June 2020 news of the latest fire didn’t even make it to the headlines.

A comprehensive investigation into the fires in Egypt published by The New Arab (Al-Araby Al-Jadeed) website headquartered in London, finds how over the past four years no less than 20 such fires have occurred.

The causes are varied and are not surprising. They range from overloaded electrical cables causeing short circuits, poor maintenance, a lack of professional supervision, the use of nonstandard electrical cables, a shortage of fire-fighting equipment and a lack of knowledge of how to use the equipment that does exist. The investigation was based on official reports and testimony by hospital employees – and it exposes managerial flaws, inadequate budgets, contradictory rules and out-of-date quality control methods, which all contributed to the heavy damage and loss of life in these hospitals.

A week after the investigative report appeared, author and journalist Saad al-Karsh then editor of Al-Hilal magazine, published a scathing article about the Egyptian educational system, which does not provide its 23 million students with the tools to deal with the challenges of modern times. He said that while education in Egypt was seemingly free, in practice the schools are divided between government and private schools.

You don’t pay tuition in government schools, but the level of learning there is low and anyone who has a bit of money prefers to send their children to private schools. Karsh said that he sent his daughter to a private school at the cost of about 6,000 Egyptian pounds a month, but she never went to a single day of classes and only attended to take tests. The school only requires rote repetition and copying and does not bother with cultivating understanding or encouraging independent thinking, he added.

A solution to the coronavirus offered in some Egyptian schools. Credit: AMR ABDALLAH DALSH / REUTERS

His article was written in response to the education minister’s plan to implement a system for the matriculation exams using computers so that students would be required to answer 30 multiple-choice questions, without any essay questions that could demonstrate writing skills and language comprehension. The minister for higher education explained that under the new system the computer would produce tests within five minutes and that this method would prevent any attempt to copy or obtain the tests before the exams take place.

These two examples, and there are many more, demonstrate the enormous gap between the improvement in Egypt’s economic situation and the state of its public services, which are suffering from deep neglect - so much so as to be life-threatening and a danger to the younger generation.

This gap was exposed even more fully when the government announced it had signed a deal with a Chinese company to manufacture solar panels from sand, and an agreement signed with Russia to build a nuclear power plant – while the at the same time the schools have a huge shortage of computers and parents need to pay for private tutoring, at an estimated cost of more than 47 million Egyptian pounds a year, a result of a poor education system.

Egyptian President Abdel-Fattah al-Sissi has received good grades for his handling of the economic reforms in 2016. The World Bank’s forecast brings good news in the form of anticipated economic growth of over 5 percent, a dramatic drop in inflation, which was 5.7 percent, the lowest level since 2014, and a three percent fall in the poverty rate. But these achievements come with a heavy social and economic price that is already falling on the shoulders of Egyptian citizens.

The prices of basic goods have gone up, the level of services has fallen, employment opportunities are limited and there are not enough jobs for some 800,000 job seekers who join the workforce every year – and government companies continue to lead in profits while private firms are left behind because they cannot compete with the public sector – especially the army, which controls the construction industry and many other civilian manufacturing sectors.

According to calculations made by Reuters, some 17 Egyptian conglomerates control more than 170 small companies and their income has risen by more than four times over in the past three years, compared to the stagnation experienced by private companies. The international Monetary Fund, which provided Egypt with a $12 billion loan, has been pressing the country to cooperate more broadly with the private sector, and Sissi has put a number of large government corporations up for sale as part of a privatization plan – but companies from the United Arab Emirates and China have bought many of them, so the Egyptian private sector has still not truly benefitted from the process.

The cultivation of the government companies also has a budgetary price. These companies enjoy excessive tax breaks, along with property tax and customs exemptions, and so they not only have a big advantage over private firms, they also detract from government revenue. The government is trying to implement a new plan, or more precisely – to resuscitate an old plan – for expanding tax collection from the “parallel economy,” which is not registered and does not pay taxes, and whose revenue is estimated at some $170 billion, or about 40 percent of Egypt’s GDP.

About 78 percent of government revenue comes from taxes, but these are mostly indirect taxes that depend on private spending, or a long list of fees levied by the government. To increase the share of direct taxes, which is based on income, and reduce the share of indirect taxes, the government is offering workers and unregistered business owners to begin reporting in return for far-reaching benefits.

Al-Sissi, Bin Zayyad at the signing of their economic partnership. Credit: KARIM SAHIB / AFP

One is a reprieve from old government debts, along with an especially generous tax scale for those who sign up. For example, those with an income of up to $16,000 a year will pay only $63, and the amount will rise to $320 for those with incomes between $32,000 and $64,000 a year, with the goal of achieving a revenue gain of some $60 billion from direct taxes.

This would seem to be a generous offer, and a move that if it succeeds could change not only the level of government revenue but also the public’s understanding of paying taxes. But as could be expected, business owners have opposed the proposal fearing they will be forced to pay much larger amounts farther down the road, which will reduce their income – which in any case was never very high. The business owners say they will be forced to hire tax advisers and bookkeepers, print receipts, come under supervision and pay for opening tax files – so the tax breaks they receive will be less than the higher costs that they will face.

A confrontation with of citizens who work off the books is not a path Sissi will want to take and for now it seems that what was is what will be. The government will prefer to levy additional taxes or cut the budgets for services for the public rather than risk an outbreak of fresh public protests. It is easier to go along with the fires in hospitals and failed schools than it would be to cope with mass protests against new tax legislation.

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