Wednesday,22 August, 2018
Current issue | Issue 1316, (20 - 26 October 2016)
Wednesday,22 August, 2018
Issue 1316, (20 - 26 October 2016)

Ahram Weekly

Getting out of a bottleneck

President Abdel-Fattah Al-Sisi’s interview with Egypt’s national newspapers this week aimed at calming worries about the country’s economic reform programme and shed light on several national and international issue, reports Sherine Abdel-Razek and Reem Leila

Al-Ahram Weekly

“We are in a bottleneck, and if we want to get out of it we need to embark on tough measures. We have to be tolerant and patient,” President Abdel-Fattah Al-Sisi told the editors of the three state-run newspapers this week.

The interview came at a time when Egyptians from different social and income strata are worried about the status of the economy and consumed by fears of what to expect when all the planned reforms, including the devaluation and cuts in fuel subsidies, take place. There have been calls for demonstrations on 11 November to protest against the current price increases.

“As a man who has worked with the intelligence apparatus he knows there is unrest in the streets due to the runaway prices and increased unemployment, and that is why he gave this interview — to address the man in the street,” Hani Tewfik, chairman of the Egyptian Direct Investment Association, said.

Egypt’s inflation rate is hovering at around 15 per cent and is expected to increase by at least another three per cent in the coming months when the currency is devalued.

Al-Sisi tried to make it clear to people in his interview that the current reform programme is the only alternative for Egypt and the only guarantee that the subsidies provided by the government reach those who deserve them.

“What is important in adopting the reform programme is to protect those with limited incomes, and we will not leave the poor to face the reform’s repercussions unprotected,” he said.

Egypt is embarking on a wide programme of reform aiming at containing the budget deficit, introducing the new value added tax (VAT), adopting a civil service law to upgrade the efficiency of state employees, devaluing its currency, and cutting energy subsidies.

Al-Sisi outlined measures to tackle rising prices resulting from the reforms in his interview, including reviewing ration card databases and eliminating those not eligible for support, reviewing the social welfare and Takaful and Karama programmes, and expanding the state’s network of subsidised food retailers.

Building up to six months’ worth of strategic reserves and ensuring domestically produced staples are widely available are also included in the limited income protection measures.

“These measures should have been implemented over the last three years. I and other economists have asked for the efficiency of tax collection to be improved, so that tax revenues come in at the international average of 25 per cent of GDP and use this in financing the social safety net for the poor,” Tawfik said.

“Now people will have to suffer for a while until these policies are activated,” he lamented.

Al-Sisi also talked about plans to increase the supply of locally produced commodities through expanding fisheries and greenhouses for agricultural products in addition to livestock farms. Such plans have already been bearing fruit, as he noted that vegetables production in greenhouses had doubled and that 1,065 new fisheries were to be inaugurated in East Suez in December.

This approach of increasing the local supply of goods is the right way forward, according to Karima Korayem, an economics professor at Al-Azhar University in Cairo, as the problem with policies aiming at bridging the supply-demand gap by importing commodities was that they increased debts and worsened the economic situation in general.

The president sought to reassure the public that the IMF loan being negotiated by Egypt was a good thing, stressing that acquiring the loan would be testament to the strength of the economic reform programme and Egypt’s ability to repay it. 

Egypt in August reached a staff level agreement with the IMF to acquire a $12 billion loan in a bid to restore confidence in the economy and deal with its foreign exchange shortage. “We are talking about the IMF deal as if it was our last resort, which might be true. But I fear that some of the policies linked to the loan might backfire,” Korayem said.

“From previous experiences with senior officials, I am afraid that they are not able to give the right  picture of the socio-economic circumstances in Egypt to the IMF officials,” she added.

The president also spoke about developments in the national mega-projects, especially for the new capital, saying that the first phase of this would be finished next year. He told his interviewers that the head of a Chinese company had asked for 16,000 feddans of land to develop in the new capital in order to set up a smart city for modern industries in IT and biochemistry.

“He said there was a plan to complete the project in 2028, but I told him we wanted it done in 2020,” Al-Sisi said.

“Finishing the project before schedule is not the main criterion to measure its success. The main thing is who are the beneficiaries of it, what is the value it adds to production and supply, and how fairly are the benefits distributed,” Korayem commented. 

Tawfik said al-Sisi’s discussion of the national projects was the explanation he felt he owed to people to let them know why he was heavily spending on these projects. “Classically, countries with slow growth rates resort to such projects in order to accelerate growth, but our problem is that the resulting increased demand is not matched by increased supply, and thus prices surge,” he said.

The media’s role was discussed in the interview, as the president complained that some media outlets had presented issues threatening national interest based on false information or incorrect perceptions. He gave the examples of the reports on fuel subsidies that might lead to people stocking it, leading to shortages and pushing the state to import more and spending more foreign currency.

Egypt’s TV channels and newspapers, even privately owned ones, exercise great care when criticising the state or the president. The state has a history of suppressing news that could be seen as damaging to its image.

The Al-Hayat network, a privately owned TV network, pulled a widely viewed video showing a Tuk-Tuk driver criticising the economic situation in Egypt from its news sites this week. The clip was aired on a programme called “One of the People” on Wednesday night. On Thursday it was announced that the host of the programme would be taking a vacation that had not been mentioned previously. 

The role of the military in the economy, a sensitive issue, was highlighted by Al-Sisi in his interview, the president saying that the Armed Forces’ role in development projects would ease in the coming years as it completed the national projects to upgrade the country’s infrastructure.

The increased presence of the military in the economy has raised reservations about its economic footprint, which includes everything pasta factories, bottled water, infrastructure projects and international schools. Moreover, the number of governors and heads of state bodies with military backgrounds is on the rise.

“Talking about less involvement of the military in the economy is a good step. I understand that the military is the most efficient organisation to implement projects now, but the military should not be deciding plans for the economy or setting its priorities” Tawfik said.

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