Time for Egypt’s economic revolution

It is hard to believe it has almost been a year since Egypt’s uprising began. 

In the last 12 months, the concentration has been on the politics the governments that have come and gone, the actions of the military rulers and violence on the streets.

But some analysts predict it is the economic, and not the political, situation in Egypt that may end up being the biggest problem and destabilizing factor in years to come.

The Egyptian prime minister, Kamal El Ganzouri, seems to speak about little else these days. He’s described the economy as a disaster and said people don’t realize the scale of the problem.

So, what is the problem and how does Egypt fix it? The data speaks for itself, and bear in mind 40 per cent of Egyptians are already living on $2 a day or less. 

‘Ash, horreya, adela’

Fatma is a street vegetable seller. She has six children and says some days she struggles to feed them let alone think about their education.

“The prices, the prices, everything is very expensive. You can buy 500 or 600 pounds worth of vegetables and it’s a tiny amount. We don’t make a profit anymore” she told us.

One-third of Egypt’s budget is spent on subsidies, mainly food like bread and sugar. These subsidies are not targeted, which makes them a huge drain on the economy.

The government has recently said it will cut some energy subsidies.  The problem is enforcing these measures.

As Hani Sabra, an analyst at the Eurasia group puts it, “In a sensitive political atmosphere as we have today, doing something as drastic as reducing energy or food subsidies would be political suicide, and new governments, to have credibility with the public, like to hand out goodies. [They] don’t like to take things away.”

Foreign reserves dropped 50 per cent last year (from $40bn). There is barely enough to cover the next three months of imports, according to experts, which could lead to food shortages.

“I think the problem is last few months you’ve had reserves drying up because the government wants to defend the pound,” Sabra explained.

“They don’t want it to devalue and there is pressure on the government to devalue. The problem is they are very restricted in their ability to do that because if you go back to January 25, what were people saying”

“They were saying ‘Ash, horreya, adela’ [“bread, freedom, social justice”] If you have a government that decides to devalue the currency and the cost of basic food price rise, then you will have a politically unstable situation arise again.”

High unemployment

Inflation is rising monthly (10.4 per cent in December) and the Egyptian Exchange’s benchmark stock index closed out the year over 45 per cent down from its level at the start of 2011. 

Meanwhile, one of the main sources of income – tourism – is declining.

The political turmoil affects the economy and vice versa. Unemployment is at its highest rate in ten years.

It was young, disenfranchised men who were on the front lines fighting the police in November on Mohamed Mahmoud Street and battling the military in December on Kasr El Ainey.

These protests were political, but it would be a mistake to ignore the economic factors and how they are fuelling frustration.

Also, much of the aid promised by foreign donors, according to the prime minister, has yet to arrive.

There are talks with the International Monetary Fund for a $3bn loan.  So far, the Supreme Council of Armed Forces (SCAF) have resisted the idea of taking the loan, arguing Egypt can go it along.

Decision time

Analysts say it is more likely that the SCAF doesn’t want to take any hard economic decisions.

And that’s the main problem: the SCAF feels, given the charged atmosphere, they can’t afford to make a drastic economic move.

It is fast becoming clear that they can’t afford not to. There is a complete lack of any creative solutions to deal with the country’s economic problems.

With no vision or plan being presented by either the SCAF or the other political forces, including the Islamists and the Liberals, it is difficult to see how Egyptians, much less foreigners, will have the confidence to invest in the new Egypt so the situation can improve.

Last January this revolution, at heart, was about reclaiming Egyptian pride and human dignity.

A year on, parents still can’t put food on the table for their children and the children have no prospects of finding a job.

Just like there is no quick fix for the political situation, we can’t expect a quick fix for the economy.

Even so, it is time for the political forces in this country to start showing some leadership and make some tough economic decisions desperately needed.