By Bernard Goyder
‘Aīsh, huriyya, ‘adāla igtimā’iyya’, ‘bread, freedom, social justice’, was a popular chant during the 2011 Egyptian revolution that ousted Hosni Mubarak. How is the regime of President Al-Sisi delivering on these popular demands?
While these changes have succeeded in reducing unsustainable state expenditure, they have come at a high cost for Egypt’s poorest.
The subsidy question had vexed the former general’s predecessors. Mubarak, Field Marshall Tantawi and Morsi were criticised by the IMF for their failure to reduce state spending on fuel and bread.
Al-Sisi has tweaked the bread hand-out regime for poorer Egyptians. A ration card system has been introduced. Families are to be limited to five loaves each. The government estimates that as much quarter of the current bread subsidy of LE31.6bn ($4.41bn) is wasted, through fraud and smuggling.
Egypt is the world’s largest importer of food. The fact that most of the country’s sustenance is brought in from outside makes Egypt vulnerable to massive fluctuations in global food prices.
Al-Sisi has luck on his side. Global food prices are at a four year low, making it an easier time to rebalance the books.
Fuel subsidies have been among Al-Sisi government’s first policy targets in July 2014. Lowering fuel subsidies was considered politically impossible for Al-Sisi’s predecessors. Even Mubarak declined to expose consumers to dramatic price rises. Since taking removing the subsidies on petrol and gas, the costs for consumers has risen by 70%, effecting the poorest households the hardest. Economists and proponents of the scheme argue that it will save the state $7bn that can be spent on much needed health, education and infrastructure. But an argument that promises a better future at the expense of prices today has angered many Egyptians.
Bailouts from allies in the Gulf, Saudi Arabia and the UAE have shored up Egypt’s foreign exchange reserves, but serious problems remain. Tourism revenues have fallen 48% in the past year and youth unemployment was running at 29% in August this year.
The World Bank has criticized the structure of the Egyptian economy, saying in a recent report that “the dominance of a few large, old, and politically connected firms is strangling the growth of a robust and competitive private sector.”
A development banker working on a funding package for Egyptian small businesses told me that work was progressing slowly, with banks often unwilling to lend to small and medium sized firms.
Development banks have been offering assistance to Egypt. While World Bank funding has come through for infrastructure, for example a recent $1.5bn loan from the World Bank to improve housing and sanitation, the IMF has stayed aloof. The IMF managing director Christian Lagarde says the organisation stands “ready to help Egypt and its people”, but there are no plans for a loan as of yet.
Al-Sisi has turned instead to patriotic feeling to fund his most costly project to date, a new channel in the Suez Canal. Like a Nasserist version of the website Kickstarter, the Egyptian government are getting citizens to invest in the project and have raised US$6bn of the $8.6bn target. The canal expansion will cost an estimated $220bn over fifteen years.
The ability of the Al-Sisi government to change subsidy policy without inciting massive protest, the confidence receives from global financial institutions and early steps on infrastructure demonstrate how much of a freer hand Al-Sisi has compared to Morsi. The Muslim Brotherhood government was hampered by its inability to control the military. Al-Sisi’s army background and broad support network in the army, tied to his willingness to give the army major construction contracts, even sending in troops to drive busses during a drivers strike, is the key to his economic policy.
Few know exactly how much of the country’s economy is controlled by the military, with estimates ranging from 1% to 60% depending on the political preferences of the person citing the statistic.
While Al-Sisi may be able to deliver bread to Egyptians, the revolutionary demands of freedom and social justice further off than ever. The repressive, ‘fuloul’ state enables Al-Sisi to make ‘tough decisions’ that harm the poorest without fear of popular backlash.
The stability of military rule means investors and tourists will return to Egypt. But freedom and social justice evade Egyptians.
Latest posts by CME (see all)
- “Terrorist, plain and simple”? The misleading strategy behind the “terrorist” tag. – October 6, 2015
- Letter Smuggled out of Egyptian Prisons: Esraa El Taweel Speak – July 14, 2015
- We must not forget Abu-Salim – July 7, 2015