7 - 13 March 2002
Issue No.576
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Al-Ahram Weekly Online 7 - 13 March 2002 Issue No.576 |
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Price fiesta
The recent flux in economic policies has sent prices sharply up. Sherine Nasr looks at why prices have started to rise and what this has done to local consumers
Grumbling seems to have become a national pastime. Not without reason, of course. For the estimated 68 million people that comprise the nation's population, life has become significantly more of a burden. Overnight, it seems.
Some of the groans are especially loud.
"This cannot be," one woman grumbled as she scanned the narrow aisles of her neighbourhood grocery store. "I haven't bought a single item. Why do I have to pay more for the same items I buy every week?"
This is not something new to the local market -- prices have gone up in the past. This time, however, it is not a matter of piastres, but a matter of pounds. And to those who make up the country's masses -- people of low and middle- income -- all the financial big-talk is nothing but that: talk.
Anchoring the pound to the dollar, pound devaluation, and market slowdown mean nothing. The only thing that hits home is the increase in prices. Not just an increase, one must note, but relative to government salaries, a painful one.
In recent weeks, the local market has witnessed an unprecedented increase in the price of commodities. The price of many brands of vegetarian margarine, for example, has risen by LE3. So has corn and sunflower cooking oil. The price of sugar, flour and tea has increased by 40 per cent. Meat, poultry, eggs, milk and cheese are facing variable increases. Automatic washing machine detergents are no exception.
It is bad enough that commodity prices are on the rise, but what makes it even worse is that amidst this parade of shooting prices, services, consequently, have sent their prices moving up, too. Taxi drivers are demanding more fees for the same distance. Barbers, tailors and mechanics want more.
"Livelihood has become costly" is the motto of the moment.
The government, in the face of this price problem, remains silent. Its voice is heard in random spurts, when it releases statements emphasising the need to support low-income families and to lift the burden on middle and lower social classes. According to Prime Minister Atef Ebeid's latest statement, published in the daily Arabic-language Al- Ahram on 12 February, the volume of expenditure in the upcoming budget is estimated at LE135 billion, half of which will be directed to supporting low-income families.
While to the outsider it may sound like a picture of hope, economists believe that things have veered out of control.
"The government does not lack in statements but it certainly lacks in transparency. And transparency means credibility," said Ali Lotfi, former prime minister. He added that the monthly report issued by the Ministry of Economy as a market indicator does not mention any price increases.
For most economists, however, it is easy to explain why prices have gone high, and why now.
"Since the beginning of the economic reform programme, launched in the early 90s, the Egyptian pound has been anchored to the US dollar," explained Gouda Abdel-Khaliq, member of the politburo and Chairman of the Economic Committee at Tagammu Party. "The nominal rate was LE3.4 to one dollar in 1991 and for a long period that was sustained."
To maintain that rate, the Central Bank of Egypt kept intervening.
"The advantage of this regime was to stabilise the market, yet other measures should have been taken side by side with the anchoring policy to sustain the economy," said Abdel-Khaliq, who referred to reducing the budget deficit as one supportive tool that should have been used to cool off the economy.
Instead, there has been chronic instability in the exchange rate. In little over a year, the pound has devalued aggressively and is now set at 4.61 pounds to the dollar.
"There is speculation that it may go down even further," Abdel-Khaliq said.
The sheer fact that the national economy has become strongly dependent on export is not only unfortunate, but rather alarming. It is this export crutch that explains why the nation is witnessing a prices fiesta.
"Egypt's imports have reached $16 billion while exports are estimated at $4.5 billion," Lotfi said. "This means that there is almost a $12 billion deficit in the trade balance annually." He added that even final local products have a foreign component in them. "Worse is the fact that we actually import our own food, i.e. wheat, sugar, butter."
The absence of foreign currency in the market, coupled with the devaluation of the Egyptian pound, have come in synchrony with other domestic problems. According to Abdel-Khaliq, the growth rate decreased to 2.5 per cent in 2001, barely above the rate of population growth. In addition, the imbalance in demand for foreign currency relative to supply points to a potentially dangerous level of public debt.
"The Egyptian economy is in a pretty difficult situation," he said.
The problem, on one level, is the lack of clear rules for the pricing of daily commodities. The government, however, readily resorts to market-economy principles as a good excuse for what is going on. Economists believe otherwise."
"The wrong concept of market economy has been propagated for so long," Abdel-Khaliq said. "Market economy involves tremendous discipline which is not happening in the economic arena."
One strong principle of market economy is the prohibition of monopoly of a commodity or a service. "Such is not the case because a few producers are controlling the main share of many commodities such as steel, iron and cement," Abdel-Khaliq said.
"Normally pricing is based on what the market needs plus a marginal profit for the trader. But what is happening now is a bit exaggerated," Lotfi said.
According to Sediq Afifi, head of the Society for the Protection of the Consumer, there is no way to judge whether the increase in prices is due solely to the devaluation of the Egyptian pound, or because greedy traders are making use of the situation and are blowing things out of proportion.
"Lack of information at this stage is dangerous and unforgivable," Afifi said, underlining the fact that the Ministry of Internal Trade and Commodities should issue lists of commodities and an acceptable increase in the price of each. "Without such basic information, the association can hardly operate and there is little we can do to protect consumers in case of fraud."
In an atmosphere where neither political parties nor consumer protection associations can act effectively, consumers are held in an awkward situation.
"A typical reaction in this case is for the consumer to rearrange priorities so that he can buy only the basics and do without what he believes to be luxurious stuff," said Abdel-Basset Abdel-Moati, head of the Arab Association of Sociology, and Professor of Sociology at Ein Shams University. "Secondly, to overlook quality for the sake of a cheaper price: this can lead to many serious health problems particularly for children."
While the people have no alternative but to keep on struggling for their livelihoods, they will continue to act individually rather than pooling their efforts and acting as a whole.
"For so long, Egyptians have not been the real actors. Yet, they will continue to master the role they know how to play most, namely, to put up with as much pressure as they can take," Abdel-Moati said.
In short, the public will tough it out and take in as much of the price problem as they can tolerate.
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