The good news this month in Egypt for millions of government bureaucrats and employees of government-owned companies is that they’re due to get a 13 percent pay increase in July – an average monthly salary increase of 500 Egyptian pounds. In Egyptian currency it sounds like a lot, but it’s only roughly $30.
The country’s minimum wage is also due to go up to about $174 per month. One shouldn’t belittle such amounts in a country where about 30 percent of the population officially lives in poverty and where the unofficial rate is much higher, and where many people earn less than $3 a day. But the concern – and the suspicion – is that the pay increase will be tied to other moves that will leave Egyptians where they were in the first place at best, or more realistically may even leave them worse off.
The Egyptian government made a commitment to the International Monetary Fund to carry out significant economic reforms in exchange for the $12 billion loan that the country received in 2016. Some of the reforms have already begun to be carried out, with cuts to government subsidies for the needy and a hike in fuel prices. Now the government intends to cut the subsidies, which account for more than $5 billion of its budget, even further. About two-thirds of that sum is for subsidizing bread while the rest goes to other staples.
A year ago, Egyptian President Abdel-Fattah al-Sissi decided to cancel government assistance to young couples on the grounds that “anyone who can pay for a wedding doesn’t need help from the government.” He also decided that the food card provided to the needy to buy basic staples at government shops would not be issued to more than two members of a family.
Now, Sissi plans to further limit access to the food cards, which more than 35 million families currently receive, and to reduce the assistance by 20 percent. The plan is also to cut electricity subsidies by 2025. Deliberations have begun on increasing the price of bread and pita. “The government can’t fund everyone,” Sissi has said on various occasions.
For its part, the public has accepted the cuts relatively calmly. Protests over food and fuel that prior Egyptian regimes faced have not broken out. Partial strikes have been staged, but they haven’t involved hundreds of thousands of people, like in the 1990s or in Egypt’s Arab Spring revolution, which took place 11 years ago this month.
At that time, one of the primary demands was “living in dignity.” The cushion that the government is now offering through wage increases is designed to somewhat soften the blow that the public is expected to sustain, but there’s no guarantee that the public will quietly comply this time.
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President Sissi can absolutely claim credit on the economic front. The country’s foreign currency reserves have jumped to more than $40 billion from $12 billion when he came to power in 2013. Inflation is under control; international financial institutions and the International Monetary Fund, project inflation of 5.7 percent for the fiscal year ending in July and 5.5 percent the following year.
Another IMF demand was to curb the army’s involvement in the civilian economy while strengthening Egypt’s private sector. There has been major disagreement regarding the extent of the involvement of the army and security officials in the economy. Sissi has claimed that it’s just 1.5 to 2 percent, while Egyptian economists have estimated that the army’s share is in excess of 50 percent.
The main complaint against the army, which received permission back in 1979 to invest in commercial civilian production plants, is that it doesn’t compete fairly in the private sector. The army is exempt from customs duties on imported raw materials. It doesn’t pay taxes on its profits. It’s not subject to bidding processes that the law normally requires or to parliamentary oversight over how its funding, revenue and investments are allocated.
In recent years, the president has promised to privatize some military companies in the face of public and international criticism. He has also pledged to permit the public at large and foreign investors to purchase its shares. But most of this process has remained on paper. Several government companies have in fact been privatized, but army-owned civilian companies have continued to benefit from complete independence.
Following the new promises, Egyptian Prime Minister Mustafa Madbouly announced that the government intends to privatize 10 companies, although he didn’t say when. In the near term, the Safi mineral water firm and the army’s retail gasoline service station company are due to be privatized. However, firms with strategic value such as those operating iron mines or steel mills are not for sale. Another company not for sale, in which the army holds a 51 percent stake, is the one building Egypt’s new administrative capital near Cairo.
The government’s explanation to date for the delay in privatization relies on the claim that the army has the means and much greater capabilities than the private sector to carry out particularly large infrastructure projects. There is a basis for such an argument, but leading executives in the private sector assert that successive Egyptian governments haven’t permitted the private sector to develop its capabilities by preventing them from executing large projects while turning them over to the army instead.
The key question is how to square the discrepancy between the optimistic macroeconomic data and compliments that Egypt has been getting from the international institutions on one hand, and the situation of Egypt’s citizens, whose incomes and purchasing power based on the Egyptian pound have been shrinking as prices rise and government assistance falls, on the other.
The answer may be found in a pessimistic analysis by prominent economist Robert Springborg, who has researched the Egyptian economy for decades. Egypt “has become a beggar state, its economy ever more reliant upon foreign support, especially loans,” he wrote in a detailed and penetrating article recently published.
Since Sissi’s rise to power, Springborg said, Egypt has turned to insatiable, grandiose investments that cannot raise the Egytpians’ standard of living. He cites as an example the new administrative capital, in which more than $58 billion has been invested and to which government ministries have recently moved. He also mentions Egypt’s plans for nuclear-powered electricity plants at a projected cost of $25 billion and the widening of the Suez Canal for another $8 billion.
Springborg calls Sissi’s penchant for building huge unnecessary projects the president’s “wow factor” in his bid to gain public legitimacy and to earn him the status of a historic leader of the country. Of course, such a penchant comes at a huge financial cost that has saddled Egypt with an external and domestic debt estimated at $370 billion. Payments of interest and principal on it account for more than a third of the country’s budget.
This debt dramatically impacts the Egyptian public, which is deprived of proper public services, and funding for education and health care, which is considerably lower than what the constitution requires. Egypt’s workplace participation rate for the working-age population is just 42 percent, while the Western average is 59 percent. This is just a selection of counts in the indictment that Springborg presents against the Egyptian authorities.
Egyptian governments have for decades relied on the assumption that the West wouldn’t permit Egypt to collapse, and that it was too big and important for the world to ignore its difficulties. That assumption has proven itself until now. But with the 11th anniversary of the Arab Spring revolution this month, it merits remembering that sometimes there can be surprises regarding fundamental assumptions.