Tuesday,17 October, 2017
Current issue | Issue 1300, (16 - 22 June 2016)
Tuesday,17 October, 2017
Issue 1300, (16 - 22 June 2016)

Ahram Weekly

Two years on

Al-Ahram Weekly sheds light  on the challenges and economic achievements of President Abdel-Fattah Al-Sisi’s first two years in office

Economy
Economy
Al-Ahram Weekly

When Abdel-Fattah Al-Sisi became the nation’s president in elections held two years ago, his sweeping popularity may have inflated expectations of his ability to mend Egypt’s ailing economy. He did not put forward a detailed economic programme during his campaign, and people were willing to tighten their belts for a while in order to reap the fruits he promised.

The confidence in his abilities was best illustrated when Egyptians contributed LE64 billion in less than eight days to finance the New Suez Canal, presented as a new national project that would almost triple the canal’s revenues in 10 years.

His popularity also made his decision to lift energy subsidies in July 2014, a move that his predecessors since the 1970s had feared to take for fear of the social uproar it might trigger, pass smoothly with full public approval.

He delivered on his promise to end the country’s energy crisis through the construction of power stations, adding 3,600 megawatts (MW) to capacity, the import of liquefied natural gas, especially from the Gulf countries, and repaying some of the dues owed to foreign companies. These measures ended the rolling power blackouts that the country had suffered from in the years following the 2011 and 2013 revolutions.

Also past are the days when long queues of cars used to wait for hours in front of petrol stations to get supplies of petrol and diesel fuel.

In February, Al-Sisi said the government will be completing plans to develop and pave 6,000 kilometres of roads by the end of 2016 and that it has already finished building 133 bridges in 20 months.

“Good road networks, together with sufficient power, are the prerequisites to attract investment and boost internal trade,” said Osama Mourad, chairman of Acumen, a local investment bank.

With all stages of the political road map completed with the election of the new parliament, Egypt is once again a politically stable country, and Al-Sisi’s two years in office have seen the return of many state institutions to their proper roles.

“Now we know which state body is managing which institution,” said Sherine Al-Shawarby, a professor of economics at Cairo University. “Ministers spend more time in their positions now than they did in the years following the revolutions, when we used to see short-term ministers with contradictory agendas.”

But economic indicators are the main gauge of the improvements made over the last two years, and these have in some respects been disappointing. The economic indicators that recovered during Al-Sisi’s first year in office are now moving back into the red once again.

The pound has lost 40 per cent of its value, the trade deficit is ballooning, and internal and external debts are reaching all-time highs. GDP growth declined in the first quarter of the 2015-2016 fiscal year to 3.1 per cent, compared with 4.5 per cent the year before.

There are a host of reasons behind these negative figures, among them tourism losing ground after the downing of two planes. The World Bank has estimated the tourism sector’s losses since the crash of the Russian plane in Sinai in October last year as standing at $3.3 billion.

Dollar-denominated Suez Canal revenues have also declined when compared to before the digging of the new canal due to slower growth in international trade. The decline in international oil prices has made the Gulf countries, which have generously poured aid into Egypt since mid-2013, more reluctant to give assistance to the struggling economy.

Some of the government’s policies over the past two years have added to these problems.

“The role of the government in the economy is increasing. This has been the main feature of the economy since Al-Sisi came to office,” said Omar Al-Shenety, managing director of the Multiples Group in Dubai.

In the 1990s and up until the 25 January Revolution the only national project in the country was the Toshka Project and there was a strong emphasis on a larger role for the private sector, he recalled.

“Now the trend is on focusing on multi-billion national mega-projects executed by the military,” Al-Shenety said. Such projects need large investments and they are risky by default the long term.

“There is a danger of a mismatch. The returns from such mega-projects are in the long run, which means the government is shouldering the heavy burden of financing projects that will only bear fruit years down the line,” he added.

Another feature of the Al-Sisi administration, according to Hani Tawfik, chairman of the Arab Private Equity Association(APEA) is that there is no known advisory committee helping in decision-making or setting economic priorities in light of the country’s limited resources such that the targeted growth rates needed to create employment are achieved.

“We don’t know what the criteria are that have been used to select the projects or their financing methods in detail,” Tawfik said. “For example, the feasibility of cultivating 1.5 million feddans [one of the government’s major objectives] is not only related to the availability of fresh underground water. There has to be an assessment of the real cost being shouldered for the end product and where and for what price it will be sold.”

The power deal with the German company Siemens, costing more than $10 billion, could also have been executed in stages rather than implemented all at once and making Egypt suddenly liable for extensive dues.

The limited role of the private sector under Al-Sisi may be another shortcoming. The contribution of the private sector to the economy has declined from 70 to 55 per cent, according to Mourad.

“This raises fears as public administration of business is not always efficient in either the medium or the long terms,” he said. “The most efficient manager is an owner managing his own money.”

According to Al-Shenety, the government has its reasons for depending less on the private sector, as both local and foreign investors have been reluctant to invest in the country in recent years owing to the political instability. “The government stepped in to play the main role in the economy, and it is dealing with these projects as the main engines of growth,” he said.

Al-Sisi, Tawfik said, has also been depending on the military in order to bypass the bureaucracy of state and private-sector bodies. The military controls vast areas of the economy, overseeing roads and infrastructure construction and producing everything from bottled water to pasta. The value of this business empire is a secret, though some estimates put it at as much as 40 per cent of the economy.

No economy can develop by depending only on state bodies, Mourad said. “For an economy to develop, there should be the public sector, private sector and civil society working together. But we are cracking down on civil society organisations and limiting the role of the private sector. This takes away from the development potential of the economy,” he said.

Observers believe that a lot of work has been done on the social level over the last two years, but they say this may not have been enough to make a tangible difference. “At the end of the day, people are in a worse state today than they were,” Al-Shenety said.

Al-Shawarby, formerly head of the economic justice unit at the Ministry of Finance, said that most decisions had been made to deal with poverty rather than to end it. “Any policy that doesn’t end inflation is useless in dealing with poverty,” she said.

Inflation in Egypt jumped to 12.3 per cent in May, as the impact of March’s devaluation of the pound continued to feed through into price pressures. Food inflation, which accounts for around 40 per cent of the basket of commodities used in calculating the overall level, increased to 14.3 per cent compared with 12.7 per cent in the previous month.

There was also a sharp rise in healthcare inflation following the government’s decision to hike medicine prices in the middle of last month.

Al-Shawarby also highlighted the fact that most of the government’s spending on social programmes is to meet pressing social needs like building housing units and demolishing slums, not treating immediate economic problems.

“Realizing social justice is mainly about securing job opportunities through growth-targeting policies. Such job opportunities should be sustainable and match the qualifications of university graduates each year. Unemployment is the time bomb that we have to deal with,” she said.

However, Al-Shawarby said that to be fair ,  economists, businessmen and law-makers have failed to offer viable alternatives to the policies Al-Sisi has adopted. “We have refused any reform that might imply the slightest burden, like increasing taxes or reducing subsidies,” she said.

“But we can’t prescribe solutions as we don’t know the whole picture. The administration does not reveal the details of its plans.”

Reported by Sherine Abdel-Razek

 

 

Improved social spending?

Higher inflation has eaten away at increases in government social spending over the past two years

Since the 25 January Revolution, with its popular calls for social justice, all eyes have been on the government’s social spending. Though social justice is about much more than social spending, increasing this is widely seen as a means of improving the quality of life and the country’s social safety net.

 

HEALTHCARE AND EDUCATION: The 2014 Constitution places stipulations on what education and healthcare spending should look like in order to achieve greater social justice.

For example, it states that government spending on pre-university education should be no less than four per cent of GDP, while spending on university education should be no less than two per cent. However, two years later overall spending on education in the 2016-2017 budget does not exceed 3.2 per cent of GDP.

The same thing goes for healthcare. Health-sector allocations in the budget for 2016-2017 are only 1.5 per cent of GDP, nearly half the rate approved by the constitution. Not only are the allocations below the constitutional targets, but inflation has been affecting what increases have been made.

Though there is an 8.9 per cent increase in allocations for the health sector for the fiscal year 2016-2017 compared to the previous fiscal year, the Egyptian Centre for Economic and Social Rights (ECESR), a think tank, shows that after factoring in inflation there is actually a 1.3 per cent drop in overall spending in this sector compared to the previous year.

But it notes that there was a real increase of 12.4 per cent in investment in specific spending on the sector.

In a study entitled “The 2016-17 Budget and Questions about Social Justice,” the ECESR lamented the apparent inability of the government to rein in inflation, which is leaching away increases in resources.

Annual core inflation has reached 12.23 per cent, the highest level since February 2009, compared with 9.51 per cent in April. Computed by the Central Bank of Egypt (CBE), core inflation takes into account non-volatile consumer goods. Headline inflation in urban areas also soared to 12.3 per cent, the highest in a year.

These inflation figures reflect the effect of the devaluation of the Egyptian pound in mid-March by 13 per cent. But even before devaluation, prices had been on an upward trend.

 

FOOD SUBSIDIES: To help people cope with the increasing prices, the holders of ration cards now receive bigger discounts on commodities purchased through the ration-card system.

The in-kind subsidy system, rolled out in July 2014 after a trial period, has been hailed as a success, replacing an older system under which people received set portions of specific goods at subsidised prices. Under the new system, people can get discounts on a wide variety of goods purchased from government supermarkets.

A similar system was implemented earlier for the sale of subsidised bread. This allows individuals a portion of five loafs of subsidised bread each day. Consumers can redeem unused bread points for commodities, and the new system is said to be more efficient in targeting the needy and saves around 25 per cent of the state’s bread subsidies budget, which amounts to LE21 billion.

The discounts received on commodities were increased from LE15 to LE18 in late April, following a directive by President Abdel-Fattah Al-Sisi not to “overload” people with inflationary pressures resulting from the fluctuation in the value of the pound against the dollar.

The additional discounts mean around LE45 billion being earmarked for food subsidies in 2016-2017. There are 18.7 million ration cards in Egypt, benefiting around 67 million citizens.

 

PENSIONERS: Efforts to expand the country’s social safety net have also included pensioners, whose income is set to increase by 10 per cent starting in July.

This will mean that each pensioner will now receive an increase of no less than LE75 and no pensioner will receive less than LE500 per month. However, pensioners remain unhappy and want to see a minimum pension of LE1,200, equal to the minimum wage paid to government employees.

On Monday, some pensioners organised a Ramadan iftar in Cairo, breaking their day-long fast by eating only bread to express dissatisfaction with pensions and other issues related to the government’s management of pension funds.

 

TAKAFUL AND KARAMA: Greater attention is being directed at more vulnerable groups through the Takaful and Karama cash transfer programmes.

Karama provides the elderly and disabled with a monthly income of around LE300 per beneficiary. Takaful is for families with children living in poverty and is a conditional cash transfer to help them provide for their children. It provides a basic payment of around LE300, with increments per child ranging from LE60 to LE100 depending on age.

“Takaful is conditional and is contingent on the school attendance of children over the age of six and preventive health care such as immunisation and growth monitoring for the little ones,” Hania Sholkamy, a professor at the American University in Cairo’s Social Research Centre and a member of the team who designed the programmes, said in an article published on Ahram Online.

Last month the Ministry of Social Solidarity celebrated a year’s implementation of the programme. Thus far it has been rolled out in 10 governorates, mostly in Upper Egypt, covering 1.5 million people. Plans are underway to include up to 21 governorates and three million people by March 2017.

Sholkamy hopes the programmes “will eliminate a layer of need from the current stock of poverty in villages and neighbourhoods, but this will take place only if they are well-implemented, well-researched and well-documented.”

Poverty in Egypt stands at around 26 per cent of the population, being highest in rural Upper Egypt.

While the programmes do provide an income for individuals who otherwise do not have any, some have argued that the amount nevertheless remains meagre. An average monthly stipend of LE300 equals around LE3,600 per year, which is below the domestic poverty line of LE3,920 per person set by the Central Agency for Public Mobilisation and Statistics (CAPMAS).

CAPMAS sets the extreme poverty line in Egypt at an annual income of LE3,570 per person.

Reported by Niveen Wahish

 

Developing the Suez Canal

Dubbed Egypt’s gift to the world, the New Suez Canal was the first national project to be completed under the leadership of President Abdel-Fattah Al-Sisi and was inaugurated in August 2015. The project was completed in one year, a third of the time expected.

The project saw the digging of a new parallel canal, 72 kilometres long and 24 metres deep, representing approximately the middle section of the existing 145-year-old Suez Canal. Thirty-five kilometres of canal were dug as part of the project, in addition to the expansion and deepening of two sections, the Great Bitter Lakes bypasses and the Ballah bypass, to a total length of 37 kilometres.

The new canal was created at a cost of some $8 billion and was funded by the Egyptian people through investment certificates at an interest rate of 12 per cent. The funds were raised in a record six days in September 2014.

The new waterway shortens the transit time through the canal from 18 to 11 hours. According to the Suez Canal Authority (SCA), it reduces the waiting time for vessels to three hours at most, instead of the previous eight to 11 hours, cutting costs and making the Suez Canal even more attractive for shipping companies.

The new canal also allows for a doubling of the number of vessels crossing from 49 to 97 per day, and is projected to increase the canal’s revenues from the current $5 billion annually to $13 billion by 2023.

However, reality has thus far disappointed some expectations as a result of a turndown in global trade. The recession in Europe and the economic slowdown in China have resulted in decreased global trade growth, reflected in decreased traffic through the Suez Canal and, accordingly, lower revenues. Revenues from the canal dropped by more than 20 per cent in the last fiscal year.

The slowdown is expected to continue through 2016, as economists have lowered their forecasts for world trade growth this year to 3.9 per cent from a previous four per cent. In light of the current negative trade growth outlook, Suez Canal revenues are not expected to reach official estimates and will probably stay lower than 2013-2014 levels for the coming few years before global trade picks up again.

Egypt’s Suez Canal revenues were LE3.48 billion ($396.4 million) in March. In US dollars, this figure represents a 1.2 per cent decline compared to the $401.4 million in revenues posted for the previous month, though the value in Egyptian pounds has increased due to the devaluation of the currency in mid-March.

The Suez Canal region has become the focal point of the country’s economic development strategy under Al-Sisi’s leadership, and the new waterway is only part of the planned development of the region. Plans are now underway for the development of the Suez Canal Area Development Project (SCADP), which includes a number of locations within a 650-square-km area and includes the three canal cities.

Maritime and port activities make up the core of the project, which includes the six ports of East and West Port Said, Ain Sokhna, Al-Adabiyah, Al-Arish and Al-Tor. The master plan focusses on developing East Port Said as a trans-shipment port and Ain Sokhna as an international and domestic port and industrial centre.

The SCADP is projected to create one million jobs over the next 15 years. Some believe this figure is too low, considering that Egypt’s annual need for new jobs is 500,000. Beyond 2030, it is hoped that an additional 2.5 million jobs will be created. The jobs will serve the area’s population and will also attract others to the area. The cost of the infrastructure that will be needed in the area is estimated at some $15 billion.

It is hoped that the SCADP will act as a giant engine for the Egyptian economy, giving it a strong thrust to end the recession and take off over many years. Economists say that the project is long overdue as the area has been neglected for decades and has not seen serious development despite its great potential. The launch of the project highlights the determination of the government to develop the area and turn it into a key driver for economic development in the country as a whole.

Reported by Nesma Nowar

 

No more dark nights

Egyptians have been experiencing the holy month of Ramadan this year in a new way. The recurrent and prolonged blackouts that had become a main feature of the summer months in Egypt over the last few years are no longer present.

After he took office in 2014, President Abdel-Fattah Al-Sisi pledged to solve the country’s energy crisis through the construction of power stations, the import of liquefied natural gas, and to deal with the energy sector’s other problems. Al-Sisi’s efforts in this respect have stood out, and investment in the electricity sector has been one of his remarkable achievements during his two years in office.

Egyptians had been suffering from power outages in the sweltering summer months, when the hot weather increased the use of air-conditioners and electric fans. This in turn overloaded the country’s power stations, which had to work beyond their designed capacities, causing reduced outputs and power cuts. The cuts were particularly damaging during Ramadan, when people endure long hours of fasting in the summer heat. The power outages raised the public’s anger and reduced production in various sectors across the country.

Shortly after Al-Sisi took office, in September 2014, the government put forward a strategic plan to improve power plants, upgrade the national grid, and contract for new units to add 3,632 megawatts (MW) to capacity during the summer months of 2015 with investments worth LE21 billion.

This was achieved by starting the plants at Banha and expanding the projects in 6th October City, Ain Sokhna, North Giza and other locations. Al-Sisi is credited with accelerating the execution of the projects, and last month he inaugurated eight power stations, adding more than 3,600 MW to the national electricity grid at a total cost of $2.7 billion.

The projects, several of which entered service over the past year, include the Upper Egypt West Assiut power station that has a production capacity of 1,000 MW. The time it took to build the plant is considered to be a world record, as power from the station entered the grid in less than six months, according to a statement from GE, one of the companies working on the plant. Phase two, currently underway, will add an additional 500 MW to the plant’s capacity.

Among the other stations inaugurated last month were the Ataqa plant with a capacity of 640 MW, the Al-Mahmoudiya plant with a capacity of 336 MW, the West Damietta plant with a capacity of 500 MW, and the 6th October City plant with a capacity of 600 MW. These projects are part of the Ministry of Electricity’s five-year plan, spanning from 2012 to 2017.

Minister of Electricity Mohamed Shaker said that 6,882 MW of additional capacity has been added to the grid since the start of 2015. Egypt’s production capacity was 32,015 MW in June 2014, according to Electricity Ministry figures.

Another milestone for the electricity sector was the signing of an 8 billion euro deal with German conglomerate Siemens to build three high-efficiency natural gas power plants and wind power installations with a capacity of 16.4 gigawatts (GW). Last month Siemens announced the arrival of four H-class gas turbines at the Beni Suef power plant.

Two of the 400-MW turbines and six 500-kilovolt (kV) transformers were placed on their foundations, marking an important milestone towards the commissioning of the plant, which is set to become the world’s largest gas-fired combined-cycle power plant complex when completed. The other two power plants will be located in Burullus on the north coast and in the planned new administrative capital in the east of the country.

Al-Sisi has issued instructions to activate the memoranda of understanding signed during the Egypt Economic Development Conference (EEDC) held in Sharm El-Sheikh last year, in which the electricity sector claimed the lion’s share with the signing of 15 agreements worth some $35.7 billion.

As a result of all these efforts, the Electrical Utility and Consumer Protection Regulatory Agency (EgyptERA) recently announced that 11 months have now passed without the need to ease the pressure on the electrical grid across the country. It added that the national grid is stable and that there was a production surplus of 550 MW in March.

Reported by Nesma Nowar

 

Nuclear power deal

Egypt’s signing of a nuclear power plant deal is one of the biggest achievements of the last two years.

The deal with the Russian nuclear firm Rosatom State Atomic Energy Corporation will finance and construct four third-generation reactors within the next 12 years in the city of Al-Dabaa, 170 km west of Alexandria on the Mediterranean Sea, with a capacity of 1,200 megawatts (MW) each for a total of 4,800 MW.

The agreement, signed on 19 November after delays going back to the 1980s, commits the two countries to building a nuclear power station. Operations are expected to begin in 2022 and secure about 50 per cent of Egypt’s energy needs, according to officials.

President Abdel-Fattah Al-Sisi approved a $25 billion loan from Russia last month to finance the building and operation of the plant. He said the loan will be paid off over 35 years at an interest rate of three per cent. Installments will begin in 2029.

According to the agreement, the loan will be used by the Egyptian side for a period of 13 years between 2016 and 2028. It will be repaid over 22 years in 43 installments and will finance 85 per cent of the value of the work, services and equipment shipping.

Calls for the establishment of a nuclear plant in Egypt go back to the 1950s. However, plans were shelved until the 1980s for reasons including foreign political pressures and the few energy shortages at the time.

The third-generation reactors to be built at Al-Dabaa will provide the highest level of safety and operate with pressurised water, the Ministry of Electricity said. The reactors are quite different to those that recently experienced radiation leaks at Fukushima in Japan and at Chernobyl in Ukraine in the 1980s.

A compensation agreement has been reached with local people whose land has been compulsorily taken over by the government in order to build the reactors. In November 2015, residents of Al-Dabaa affected by the nuclear plans received LE120 million, the first installment in a total compensation package expected to reach LE360 million.

The government is compensating residents who had used land in the area for herding and for cultivating olives and wheat, even though much of the land was state-owned. The outstanding LE240 million will be given to residents in two future phases.

Egypt planned to build a nuclear power plant at Al-Dabaa in 1984, but the Chernobyl disaster in 1986 made the country wary of supporting any nuclear project at that time. The government decided to put the project on hold, and it has been on and off since then until last year’s agreement with Rosatom.

The development of nuclear power generation in Egypt is part of the government’s plan to diversify the country’s energy sources and to prevent any future shortages of electricity.

Reported by Ahmed Kotb

 

Housing for the poor

The inauguration of the first and second phases of the Al-Asamrat Housing Project on 30 May was a big step forward in providing quality housing for the residents of informal districts.

President Abdel-Fattah Al-Sisi opened the project, located in the Cairo neighbourhood of Mokattam, and pledged to eliminate informal housing areas within two years. The announcement comes after the president’s made it his priority to redevelop such areas, saying that they “pose a threat to the lives of their residents”. There are about 350 such districts across the country, housing approximately one million people.

The first phase of the Al-Asamrat Project, the largest of its kind in the capital, was built on 65 feddans of land and comprises 6,250 housing units at a total cost of LE850 million. More than LE600 million was invested in the second phase, financed by the Long Live Egypt Fund, with some 4,700 housing units on 61 feddans of land.

Construction work on the third phase has already started, with LE950 million to be spent on building 7,440 housing units on 62 feddans. It has taken one year to complete phases one and two, and the third phase is expected to be completed by the end of this year.

The project aims to replace housing in the Duwaiqa, Ezbet Khairallah and Istabl Antar districts of Cairo. In addition to housing, it also provides services such as schools, medical centres, nurseries, sports facilities, markets and police stations. The project has been popular among residents because it provides new housing near existing informal areas and allows residents to remain near their places of works, main roads and other facilities.

Other housing projects for the poor were inaugurated by Al-Sisi last month, including a social housing project in Badr City of 209 buildings containing 5,016 units. The government is looking to transfer about 850,000 residents from existing informal areas to new developments, he said, which will require building 160,000 housing units across Egypt at a cost of LE14 billion over two years.

During the 2016-2017 fiscal year, the government will focus on redeveloping 156 poorer areas and making improvements to the homes of 340,000 people at a cost of LE6.25 billion, Housing Minister Mostafa Madbouly told the press last month. The ministry will work on redeveloping 123 informal housing areas at a cost of LE5.25 billion, improving living conditions for 300,000 people in the 2017-2018 fiscal year.

  Reported by Ahmed Kotb

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