In Translation: Egypt's foundering economy
Last month, the Egyptian pound reached EGP13 to the US dollar for the first time, highlighting the massive stresses on the Egyptian economy and the inevitability of a further devaluation (long expected by the markets) despite the Central Bank of Egypt’s efforts to have controlled re-evaluation of the pound. Also last week, Egypt announced that it was in the final stages of negotiating an agreement for as much as $12 billion in loans (which will of course come with policy conditions) from the IMF. Yesterday, President Abdelfattah al-Sisi warned that austerity measures are coming. All of this points to the continuing fall of the purchasing power of average Egyptians, from the poorest segment of the population (only partly sheltered by price controls on basic goods) to the middle class (perhaps the most dramatically affected).
These developments have appointed once pro-Sisi commentators to lash out. Like many once pro-establishment Egyptians I have met in the last year, it is not so much that they blame Sisi for the alarming economic condition of the country (that after all is a long-term trend) but his lack of vision for the economy and indulgence in wasteful prestige projects and the lack of transparency with what is being done with money raised from the Egyptian public and foreign backers. In the piece below, the Nasserist columnist Abdullah al-Senawi (who in 2013-14 was said to have Sisi’s ears and was a major supporter from the “nationalist left” through his TV show and writings) skewers the Sisi regime for his and more, predicting that such poor economic stewardship may very well spell its downfall.
Thanks to our friends at Industry Arabic for the translation. Do check them out for your Arabic translation needs - we’re very happy with them, and the New York Times recently used them to translate an excellent piece on Saudi Arabia by our friend Ben Hubbard.
The economic crisis and Its repercussions
Abdullah al-Senawi, al-Shurouk, 29 July 2016
In the face of an ominous economic situation, if there is no recognition of the causes there can be no avoiding the serious consequences. The collapse of the Egyptian pound against the American dollar is just one aspect of the crisis, not its core. The rising prices of basic goods are another manifestation, but they are not the whole of it.
There is near consensus among Egyptian experts that there has been no clear, well-understood economic direction. Nor has there been management competent enough to grasp the necessities and priorities. Thus, we have arrived at a disastrous failure that is now undeniable: the markets announce it and the numbers confirm it.
If there is not a serious reconsideration, we are heading for tough days with no hope of escape. When there is no way of reviving the markets except by resorting to the International Monetary Fund, this means that the economy is teetering and on the brink of collapse.
The first question is: what exactly is the underlying problem? Why were there no policies able to create plans for production that would pump investment into the sclerotic arteries of the economy?
The second question is: to what extent are the grand projects adopted by the state responsible for depleting the country’s foreign currency reserves, without feasibility studies to examine likely revenues in the foreseeable future?
The third question concerns the aid and loans that Egypt obtained since 30 June 2013: how were they spent and according to what priorities?
The fourth question: is there an opportunity to correct and review the roots of the policies that led to this difficult economic situation?
Frank discussion of the facts is an essential step in overcoming a deep-rooted crisis, and it is legitimate and normal to raise questions. If there are no feasible ways to correct the situation, there is no hope of any social cohesion to prevent sudden collapses. Here is one indicator from the Central Agency for Public Mobilization and Statistics: 27.8 percent of Egyptians live under the extreme poverty line and cannot afford the basic essentials of human life. That number is an indication of the dangerous level of poverty, which in the countryside of Upper Egypt rises to 57 percent.
That is a store of suppressed anger that is likely to explode if the suffering becomes unbearable and the state remains completely irresponsible. The state could take some degree of action to ease the suffering of the poorest parts of society, regardless of its capacity.
The same suppressed anger in the middle classes – the main victim of the economic crisis – could lead to unrest, which nobody can predict when or where it will begin. The declining purchasing power of the Egyptian pound, along with the forecasted steady rise in prices for commodities and services and the imposition of new taxes such as the VAT, all represent a dangerous fall in real income and an unprecedented erosion in living standards that cannot be compared with any previous period. When society is on the edge of despair, everything is possible and an explosion can be expected at any time.
Around four decades ago, on 18-19 January 1977, million-strong protests filled the squares and streets of Cairo, Alexandria and other cities. This became known as the “bread intifada.” It followed the announcement of price hikes on basic goods such as bread, gas, sugar and rice after an agreement with the IMF to tackle the budget deficit.
Those protests, in terms of their size and momentum, resembled the protests of January 25, 2011, but their aim was limited to cancelling the decision to raise the prices of basic goods. President Anwar Sadat was forced to announce a curfew and send the army into the streets to impose order after the police were unable to face down the public anger. What is more important is that the decisions were all cancelled.
The lesson stayed ever-present, particularly in the memories of the security services. The interior minister at the time, Hassan Abu Basha, published a memoir about the “bread intifada.” But the passing of time creates the temptation to forget experiences. If the same factors are present, the results are likely to be the same.
If the security services are ever tested in this way, the results are pre-determined. The worst thing that happened after the 30 June Revolution was the way the security services were given a free hand in public life, allowing them to interfere in an unprecedented way in party politics, parliament, university and economic life.
That was one reason for the state’s weak will to carry out its functions. Every institution has functions that differ from those of other bodies, and it is unfair to ask the security services to take on functions other than its natural duties.
Security solutions have a ceiling of what they can achieve, however extreme their shows of force. They can work for a week or two in stopping speculation on the dollar in the black market, but they do not build a basis for relative stability in the markets and trading activity. Excesses can lead to economic paralysis that cannot be sustained for long. The issue is not one of stopping a few speculators or closing some foreign exchange bureaus, but rather changing the whole environment and revising the policies of economic failure.
The first aspect of this economic crisis is that production has almost ground to a halt and factories have almost stopped, investment has declined enormously, tourism has hit its lowest levels and transfers from Egyptians abroad have fallen to abnormally low levels.
The second aspect is that projects haven taken precedence over policies, and that is a fundamental error. Assuming that projects are undertaken due to some necessity, what are those necessities, and which of them must be postponed for the sake of other needs that are directly linked to production and operations, according to a studied plan with well-defined priorities? After the IMF loan, another question is: where is the money going exactly? It is certain that loans place constraints on future generations through accumulated debt, and no one is entitled to deprive them of their natural rights.
The third aspect is the absence of any equitable distribution of burdens. The government’s policies are similar, but less competent, than those followed by the Policies Committee1 chaired by Gamal Mubarak, the son of the former president. All the burdens are borne by the middle class and the poorest parts of society, without any readiness to impose progressive taxes on businessmen and owners of large companies, based on their profits and income, despite the fact that the constitution requires it.2 The crisis of the Mubarak regime was the lack of any type of social justice despite that economic growth reached nearly 7 percent a year.
The fourth aspect of the crisis is the poisoning of the political environment, the human rights situation and public freedoms. The economy cannot move, investments cannot be implemented and tourism cannot return to its normal high levels in a climate where politics is taken off the map and freedom deleted from the dictionary. The bad state of human rights in Egypt is one reason for the escalation of the economic crisis, as are the deteriorating levels of transparency and integrity.
There is now a fear that Egypt will be seen as a country rife with corruption – which has become more ingrained now after the sentencing of Egypt’s chief auditor Hesham Geneina following statements he made about the cost of corruption in Egypt.3 Where corruption takes hold, the opportunities for investment retreat.
That is a truth that cannot be forgotten. Egypt is looking at its future through the prism of the economic crisis and its repercussions.
- The Policies Committee (legna siyasat of the National Democratic Party was a vehicle through which Gamal Mubarak rallied a number of technocrats and policy intellectuals and sought to promote liberal economic policies in the mid-2000s. ↩︎
- Article 38 of the 2013 constitution stipulates that “The taxes imposed on the incomes of individuals are progressive multi-tier taxes that according to their tax capacity.” ↩︎
- See “Egypt's former top auditor Geneina sentenced to 1 year in jail for 'spreading false news’.“ ↩