Wednesday,22 November, 2017
Current issue | Issue 1132, 24 - 30 January 2013
Wednesday,22 November, 2017
Issue 1132, 24 - 30 January 2013

Ahram Weekly

No cure for the patient?

The government has been trying to cure a sick Egyptian economy by draining its blood, but there are other therapies on offer, writes Ibrahim Nawar

Al-Ahram Weekly

We have a bleeding patient in the shape of the Egyptian economy. Nobody can deny this has been a fact since the 25 January Revolution. Growth rates have gone down, unemployment has increased, and international reserve currencies at the Central Bank of Egypt touched a dangerous level in January 2013, almost two years after the revolution.

The only resource of funding that has kept us going during the two years since the revolution has been remittances from Egyptians working abroad. In 2012, this figure was almost twice what it was in 2010, reaching $20 billion. Egyptians living abroad love their country more than anything else, a fact that has been shown to be true day after day.

However, our bleeding patient has not yet received enough blood. On the contrary, the policies that have been adopted by one government after the next have been asking the patient to sacrifice yet more. Moreover, and against his will, the patient’s blood is being deliberately drained through policies that have been masquerading as a cure. Economic policies based on burdening poor, needy and deprived communities with higher taxes, increasing prices and reducing expenditure on public services and social goods are blood-sucking policies.

Forcing an austerity plan on the economy at a time when economic expansion is greatly needed in order to overcome unemployment and poverty could be seen as a symptom of failure in running national finances.

“Fortunately, physicians no longer believe that bleeding the sick will make them healthy. Unfortunately, many of the makers of economic policy still do. And economic bloodletting isn’t just inflicting vast pain; it’s starting to undermine our long-run growth prospects,” wrote the Nobel Prize-winning American economist Paul Kruger in September 2011, commenting on views supporting fiscal austerity plans in the US and Europe in order to fight fiscal deficits.

Kruger’s conclusion was based on his view, as reported in the New York Times in September 2011, that “budget austerity may well be counterproductive even from a purely fiscal point of view, because lower future growth means lower tax receipts.”

While the business community in Egypt is not unanimous about the idea of corporate and income tax increases, other segments of society are at one in denouncing the policy of price increases, whether directly or indirectly through various market mechanisms. There have been fears of more social unrest, disruption to production and economic deterioration.

Our patient, the Egyptian economy, can’t sustain both this amount of pressure and the policy of bloodletting. The nation is suffering from very low levels of trust between the people and the political leadership. We, all of us and without exception, should now be working hard to rebuild this trust to the highest possible level. Our patient should believe in his doctors and trust their recipes. If not, none of their prescriptions will succeed.

I have no doubt that the government in place today is trying its best to give the nation what is needed. But this government and any one following it is being severely challenged by issues that were either neglected or mishandled by the ousted Mubarak regime. Take, for example, the Egyptian Railways. For over a decade before the fall of Mubarak, international funds borrowed from the World Bank and local funding from revenues generated from selling mobile phone licenses were allocated to modernise the service.

Yet, what actually happened was that building contractors dealing with the ministry of transportation with the help of corruption rings inside the then government used the money for restoration work at train stations. Few funds were allocated to improving rail-crossing points, electric rail signals and the service itself. Blood on the tracks has now become a phenomenon across the country, especially in the marginalised and deprived region of Upper Egypt. This bleeding can’t be attributed to acts taken by the present government. Rather, it is an ongoing product of the legacy of the past.

The question now is whether the present government or any other can undo the legacies of the Mubarak regime. The only fair answer is no. This government, like the four that have been in place since the revolution, led by prime ministers Ahmed Shafik, Essam Sharaf, Kamal Al-Ganzouri and Hisham Kandil, has been in a hurry to find a quick fix to problems in order to avoid public blame and gain popularity. Yet, quick fixes don’t always work. Sometimes they fail, and other times they unexpectedly backfire.

When the president decreed the increases in sales taxes and income tax in December 2012, a few hours later he was advised to freeze the decree and put the increases on hold. Decisions to increase the prices of some fuel products have also recently been altered after being re-examined. The issue here is not whether a government is capable of taking the right decision, but rather whether there is an absence of a comprehensive vision for the future that is broadly agreed on by the whole nation.

This takes me to the main question to be examined here. We are almost in agreement that the economy has bled severely before and since the revolution. There is no doubt about that. But we differ badly on the cure that is needed to help the economy to recover. Is it fiscal discipline and the imposition of an austerity plan? Or is it a growth strategy built upon pillars of economic efficiency and social justice?

I don’t think that we are facing a severe inflationary threat, but instead we are threatened by high rates of unemployment, especially among educated people. The rate of unemployment among university graduates is above 20 per cent, while their illiterate counterparts enjoy a level of employment of up to 98 per cent, which means that only two per cent of such people can’t find jobs. To illustrate the severity of the unemployment facing people other than those without education we may add that there are almost two million people who have been out of work for more than three years. Are these reasons to justify growth and economic expansion, or should there be used to push for austerity and deflationary policies?

In my view, what we really need is a bold and efficient growth policy — a policy that will best use the country’s human and natural resources and its location as the best link between fast-growing economies in Asia, Africa and Europe. Such a policy should not sell rights on national assets, but instead should capitalise on them and mobilise funding, internally and externally, using the promise of future expectations and high returns on capital allocated for investment in large national projects.

We may need some bridge-funding in order to smooth the road to recovery. Such funding can be obtained cheaply from the IMF. But the government should also re-examine its economic reform programme as a whole.

A flow of funding from Egyptians expatriates abroad could be easily mobilised by offering land for housing, industrial projects, tourist sites and agriculture. A fair-pricing policy should be employed in this respect, since it would be wrong to overprice land offered to Egyptians living abroad. The least that can be said about such a policy of overpricing is that it is discriminatory against one group of Egyptian citizens.

With this flow of funding, the government could itself receive advances and start contracting work to build infrastructure on land newly allocated for investment. This would start a positive business cycle that could help the economy to recovery. In the long run, such a programme of land allocation should also help to change the population distribution map away from the Nile Valley.

New funds may also be generated from within the domestic market. Half of the Egyptian economy or more today is labeled as “informal”. This informal economy employs more than half of the workforce, and it ignores any kind of regulation regarding social and health insurance. Transactions take place in the dark outside the banking sector and official markets. The products of this informal sector do not observe industrial quality measures, resulting in a waste of resources and in some cases endangering people’s lives.

Of course, the government loses revenues that could be had from the informal sector of the economy, but this is not the reason why this sector should be included in the formal economy. The real priority is to create a huge economic-expansion programme in Egypt and to help regulate this sector in order that it can become a real value-added asset to the Egyptian economy. In order to do this, the government should design attractive packages of incentives, including tax concessions, workforce training and quality control assistance, which would be valuable enough to attract this important part of the economy into becoming a source of real additional wealth for the country.

I do not want to go further on the long list of measures that could attract billions of dollars of additional funds from within and without the national market. All I want to say here is that the political leadership of the country should listen to other views about ways of achieving economic recovery and reform.

The most urgent task is to find a solution to the budget deficit, but there are urgent measures that could be taken in this regard other than imposing a deflationary economic policy.

The writer is chairman of the Arab Organisation for freedom of the Press.

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