Saturday,23 September, 2017
Current issue | Issue 1335, (9 - 15 March 2017)
Saturday,23 September, 2017
Issue 1335, (9 - 15 March 2017)

Ahram Weekly

Taxing times for the middle classes

Could the social centre collapse amid the woes of a shrinking Egyptian middle class

The middle class now and before: It lived its heydays under Nasser (above) and is the class that feels the problems of Egyptian society the most. This might be one of the most important reasons why this class was the leader in the 25 January Revolution
The middle class now and before: It lived its heydays under Nasser (above) and is the class that feels the problems of Egyptian society the most. This might be one of the most important reasons why this class was the leader in the 25 January Revolution

Age has left its mark on the art deco apartment building in the Cairo district of Heliopolis where high-school student Maha lives, perhaps in the same way that life has dealt blows to her middle-class family. It was not smooth sailing for Maha’s mother, a high-school teacher, to raise three girls and a boy on her own after her husband, an officer, died at a young age.

“My mother had to work hard to make ends meet and help my eldest sister get married,” Maha reminisced. “My sisters also had to find secretarial jobs while they were still in university to help out with expenses.”

Maha was standing on the balcony of her apartment building, the architecture reminiscent of the heyday of this once upmarket district originally developed at the beginning of the last century by Belgian entrepreneur Baron Edward Empain. She was waiting for her brother to arrive from the Heliopolis Sporting Club where they have been members for decades.

Maha saw her brother arriving from the club, but she remained standing as if in anticipation, perhaps because she feels that the future is unclear. Her mother is getting older, and for her family as for many of Egypt’s suffering middle classes, the bite of inflation is becoming more acute.

It was on 3 November last year that Egyptians woke up to the news of the unprecedented decision by the Central Bank of Egypt (CBE) to float the Egyptian pound. The reform was part of efforts that secured the IMF’s approval of a $12 billion loan package to Egypt to be delivered over three years. The efforts also aim to decrease the country’s budget deficit, which currently stands at 12.2 per cent of GDP, to less than 10 per cent.

But the news sent waves of shock and anxiety through many people, who were left in a state of bewilderment over what it actually meant. Everybody seemed to be asking the same question about how the change would impact their daily lives.

Social media were also soon inundated with anxiety. “I do not understand much about economics, so can someone tell me whether my salary will be enough for me to eat bread and cheese,” a Facebook friend queried sarcastically. The question provoked a sea of equally sarcastic answers, with many advising my friend to forget about the cheese.

That afternoon, the reception area of a middle-class club on the outskirts of Nasr City was also a venue for public expressions of anxiety. The smoke of cigarettes rose and the voices of club visitors rang out as people all seemed to be discussing the same subject.

“There should have been more preparation for this unexpected move [the floatation], which will cause new price hikes that we are not ready for,” said one elderly man, as he puffed on his cigarette and addressed a circle of friends. “The government should have controlled prices first. How we will be able to cope,” he asked.

The floatation of the pound meant that the pound’s exchange rate would henceforth change according to the laws of supply and demand. That soon caused new hikes in prices in a market already suffering from waves of inflation over recent years.

Many media reports, including a February report by the Wall Street Journal, have been warning that Egypt is risking “middle-class ire as the currency falls and inflation soars”.

According to the Central Agency for Public Mobilisation and Statistics (CAPMAS), the annual urban inflation rate in Egypt increased to 28.1 per cent in January on higher food and beverage prices.

“Egypt’s headline inflation was at 23.3 per cent a month earlier, according to data from its Central Bank, up from 19.4 per cent in November, when Egypt floated its currency and allowed it to fall more than 50 per cent against the US dollar,” the Wall Street Journal wrote.

“The steep drop in the Egyptian pound’s value has made imports more expensive, while other recent government measures such as a cut in subsidies for fuel, the introduction of a value-added tax and increases in import tariffs have sharply increased the cost of living for the country’s largely working- and middle-class people,” the paper added.

That inflation, many predict, is likely to increase poverty in the country and deal a further blow to the already shrinking middle classes.

“If you ask me which is the most discontented class in Egypt right now, I will immediately tell you it is the middle class – the broadest, largest and most extensive class in society,” wrote columnist Tarek Hassan in the Cairo newspaper Al-Masry Al-Youm. “If you ask me which class is the class of the future, without which there will be no future in Egypt or for Egypt, I will immediately tell you it is the middle class in all its components.”

FEELING THE BITE: The 2015 Global Wealth Report put out by the Swiss Credit Suisse Research Institute warned of what it called an “unfair distribution of wealth” in Egypt, estimating that the size of the middle class had dropped by 48.2 per cent between 2000 and 2015 and now standing at only five per cent of the population.

Another study by the World Bank published in 2016 similarly estimated that the country’s middle classes had shrunk by 14.3 per cent in the first half of the 2000s, falling to 9.8 per cent in 2010. The question is whether the middle class is now threatened with disappearance after the economic reforms.

Hajja Loula, a French-educated housewife in her early 70s and a resident of Heliopolis, is particularly worried about the soaring price of medicine, now that the government has agreed to a 30 to 50 per cent increase in prices following the floatation of the pound.

“We can skip a meal, or cut down on luxuries, but if we stop taking medicine we will die,” Loula grumbled. Her husband still works as a university professor as the law allows him to do after the age of retirement. But soon he will probably have to retire following the passage of a new civil-service law that is targeting one million government employees and causing them to retire over the coming five years, probably in return for some financial benefits. His pension will be around LE 1, 200, his wife says.

“Prices have soared, and we are going down the drain,” Loula said. “Medicine and doctors alone cost us LE 1, 000 a month.”

Parliament has approved a law to increase the prices of medicines by 30 to 50 per cent according to the original prices of the drugs concerned. New taxes have been imposed on at least 35 imported commodities, including electrical goods, and there have been increases in the prices of electricity, water and gas. The 40 per cent increase in petrol prices have caused a similar increase in the prices of food and transportation.

People expect poverty to increase as a result, but there is also a worry that the middle class is now set to join the poorer strata of society in the absence of a government insurance plan to take care of it.

The Egyptian Centre for Economic and Social Rights (ECESR), an NGO, was among those who warned against the repercussions of the floatation. In a report released immediately afterwards, it said the decision to float the pound “will increase poverty rates to unprecedented levels in Egypt’s history.”

It complained that the government had not taken sufficient action to support much-needed social projects, such as developing the medical insurance system, reconstructing insurance for individuals and providing assistance for those who need it.

“The government has not addressed the implementation of measures that could raise people’s incomes, such as payroll tax cuts,” a statement said, warning that the government was in effect “pushing the middle class into poverty.”

“The price hikes will worsen the living standards of low-income citizens, and the middle class will disintegrate as it will be unable tomaintain its previous standard of living,” the ECESR said.

CAUGHT IN THE MIDDLE: There is no single definition of the middle class. A World Bank study has described the middle classes as being made up of those who are “reasonably secure from falling into poverty,” describing Egypt as a country with stronger downward than upward social mobility.

Estimating the size of the Egyptian middle class has always been problematic. The country’s official statistics agency, CAPMAS, provides official estimates of the size of the poorer population and the range of their incomes, but similar estimates for the middle classes are scarce and largely lacking. Recent CAPMAS estimates say that the middle class may make up nearly 50 million out of Egypt’s 91 million population, a figure that is contested by many sociologists.

Experts generally refer to the middle classes as meaning office workers, self-employed professionals, academics, bank workers and some members of the security services. However, many of these people, living on fixed incomes with generally small annual increases, can hardly match the inflation in prices.

The middle class, according to Hassan, “is the class that pays its own way, the class that studies with its own money, gets medical treatment with its own money (perhaps even selling assets for the purpose), rarely uses public transport, takes out loans and participates in associations to meet major obligations, does not use ration cards or eat subsidised bread, and the government withholds some of its taxes at source.”

“In short, it is the class that carries out the role of the state for itself and by itself,” Hassan concluded.

“The word “middle” refers to the centre,” wrote Samar Abdel-Meguid, a lecturer in economics at the British University in Egypt, in an opinion piece published in the Cairo Daily News recently. “It is the point that maintains balance and achieves stability. If the middle point breaks down, the whole system will collapse.”

Although the objective of any government, especially in developing countries, should be to increase the size of this middle class and help people to move up to reach it, Abdel-Meguid noted that this did not seem to be the case in Egypt.

Many agree that the current government either promotes mega-projects, like the New Suez Canal and the New Capital, which are not expected to bring in revenue at the moment, or sets up projects targeting the poorest strata of society to alleviate poverty, like housing for shanty-town residents, cash-handout programmes and the ration-card system providing subsidised food for the poorer sections of the population.

Such things mean that the middle class is the main victim of the current economic policies, and many believe that it is also feeling the pinch most from the devaluation of the pound.

“Although the middle class is, perhaps, the broadest, largest and most extensive class in society and a key foundation for progress and Egypt’s future, it is being neglected or deliberately ignored,” Hassan lamented.

Government policies, he elaborated, seem to either focus on low-income people or register a degree of “aversion towards the rich and prosperous classes.” And many would agree with Hassan that ignoring the middle class cannot be right for the overall health of society.

UPS AND DOWNS OF THE MIDDLE CLASS: Such things are not new for Egypt’s middle classes, however. Hoda Zakariya, a professor of sociology at Zagazig University, shrugs off statistics attempting to measure the size of the middle classes in Egypt.

“The middle class has already disappeared. It has been distorted since the mid-1970s, with the application of late president Anwar Al-Sadat’s economically liberal Open Door Policy and the exodus of many Egyptians to the oil-producing countries,” Zakariya told Al-Ahram Weekly. “I would say that the middle class has been in crisis for more than 40 years, and thus I would not blame the current inflation for ruining the middle class, particularly as it is affecting everybody,” she said.

A recent paper from the Beijing Foreign Studies University in China similarly blames “the Al-Sadat-Mubarak administrations’ political and economic policies” for “distortions in the Egyptian social structure and a ‘fall’ of the middle classes that has destabilised Egyptian society.”

The middle class expanded significantly under late president Gamal Abdel-Nasser in the 1950s and 1960s due to the adoption of socialist policies that included the redistribution of agricultural land and the expansion of free education to include high school and university. These policies also provided free healthcare and low-cost housing, as well as life-time jobs for university graduates in the government.

“That was the heyday for the middle class, which flourished and formed Egypt’s cultural, religious, educational and artistic identity,” Zakariya reminisced. “It is the middle class that pushes any society towards progress, and the more it flourishes, the healthier and more stable the society becomes. The middle class is the strata that is most present in national life and the one that gives hope to the lower classes for a better life. What we are talking about here is Egypt’s safety valve,” she said.

But that safety valve was crushed by Al-Sadat’s Open Door Policy, she argued. “The middle class, unlike the lower classes that have little or nothing to lose and the upper classes that are too wealthy to worry, is the class that is usually worried by default,” Zakariya said. “It is the class that includes engineers, doctors and professors, those whose lives are full of dreams and ambitions and who lead society towards progress.”

The economic shock in the aftermath of the Open Door Policy, according to Zakariya, caused many of those belonging to “the worried middle” to flee to oil-producing countries in the quest for financial stability and in pursuit of their dreams. “That was the start of the collapse of Egypt’s middle class,” Zakariya went on. “Those who went to the oil-producing countries then came back with different values as a result of having been exposed to a different culture.”  

This distortion was also manifested in the growth of a “growing top rung of capitalists” and the declining middle class itself, according to the Beijing Foreign Studies University. “The percentage of the upper class in the total population in 1991 was three per cent. The middle class made up 45 per cent, and the lower class 52 per cent,” it said. “In 2006, the upper class accounted for 18.4 per cent, the middle class 12.4 per cent, and the lower class 69.1 per cent.”

Zakariya does not blame inflation, but rather the deterioration of education, for the shrinkage of the middle classes in Egypt. “The middle class does not worry too much about the soaring prices of oil and sugar. Its main focus is education and securing the ambition of having good jobs and a better future for its children,” Zakariya insisted. “An educational revolution is what it will take if we are to save the country’s middle class.”

CHALLENGES OF EDUCATION AND HOUSING:  Many sociologists would agree with Zakariya that the deterioration in the standard of education in Egypt has been a nail in the coffin of the country’s middle classes.

Egypt’s educational system ranks as one of the worst in the world in international reports. The 2013 Global Competitiveness Report based on surveys of business leaders places Egypt at the bottom of 148 countries according to the quality of their primary education, for example. Likewise, the World Economic Forum, a Swiss non-profit organisation, ranked Egypt as one of the worst countries in the world for quality of education in 2014.

“The Mubarak regime, notorious for its corruption and theft of public funds, allowed the creation of good-quality education at fees ranging between LE 50, 000 and LE 70, 000 that served just four per cent of the population, mostly businessmen and those in the regime circle, while leaving 96 per cent to fend for themselves in poor quality public and private schools,” prominent educationalist Kamal Mogheeth told the Weekly, referring to the regime of former president Hosni Mubarak.

“While the middle class struggled to save for private schooling and/or private tutoring, those who could not afford them remained in public schools and produced a generation that is near to illiterate.”

Today, parents belonging to the middle class who send their children to private schools and universities now have every reason to worry about the fees for their children’s education. According to the Al-Shorouq newspaper, the deputy head of the Owners of Private Schools Society Badawi Allam has said that private schools will demand from the Education Ministry that they be allowed to increase their tuition fees between 15 and 20 per cent (instead of a previous official increase of three to 11 per cent according to the amount of tuition) next year in order to accommodate rising costs.  

Allam said that the schools would also demand an increase in transportation fees starting this year after the government reduced subsidies on petrol.

“This is too much for parents who have two to three kids to support,” grumbled the mother of three children enrolled in a private language school. She used to pay yearly tuition of LE 16, 000, plus LE 4, 000 for the school bus, for each child. Now she will have to pay around LE 19, 000 to LE 20, 000 for one child per year after the increase in tuition fees.

“I’ve been looking for other affordable schools to move my kids to, but to my shock I found that all the schools have increased their tuition, and of course the international ones have become increasingly unaffordable. We’ve given up on many things already, but we can’t take the kids out of school or send them to the state schools. There must be a way out of this crisis before we join the poorer strata of society,” she said.

“There needs to be a total overhaul of the educational system in Egypt, if the middle class is ever to pick up again and lead society,” Zakariya insisted. “The greedy businessmen who sell education should be forced out of the educational domain altogether, and a proper budget should be earmarked for a revolutionary change in the educational system.” In this vein, Zakariya suggested that the military step into the fray with affordable good-quality education that would force businessmen out of it altogether.

Education aside, many believe that the inflation in housing has also dealt a severe blow to the middle classes, causing large segments to converge with the lower classes.

Yehia Shawkat, a researcher and advocate for housing rights at the Egyptian Initiative for Human Rights, an NGO, has recently been quoted as saying that many of those living in Heliopolis are now seeing their children married in the neighbouring working-class district of Gesr Al-Suez as they are unable to afford the house prices in more upmarket districts.

According to Shawkat, the average house price should stand at six times a person’s annual income for ownership and one quarter of a person’s monthly salary for rental. “If these rates are anything to go by, then more than half of Egypt’s population cannot afford decent housing,” Shawkat said.

The shortage of land that the government offers at affordable prices with public utilities and the unfair distribution of government funds have all been to blame for the inflation in house prices.

“Large segments of the middle classes and lower classes have begun to converge. They live in the poorer neighbourhoods together while the wealthy minority grows richer,” Hassan noted. “In this severe social and political imbalance, danger lurks for the country.”

There is almost a consensus among sociologists that when the noose is tightened on the middle class, the latter is more likely to explode than die. Many mention the January 2011 uprising as a case in point.  

“The middle class is the class that feels the problems of Egyptian society the most,” Abdel-Meguid wrote. “This might be one of the most important reasons why this class was the leader in the 25 January Revolution. The chronic problems of unemployment and inequality were felt the most by the middle class, and due to the fact that people from this class enjoy higher levels of education they were in Tahrir Square where the 25 January Revolution erupted.”

Yet, six years on the middle class has not achieved its dreams. Instead, many members of it have lost their jobs and are suffering from inflation and unemployment due to the economic and political instability that hit the country following the revolution.

“The problem remains policies that do not advance the status of the political, social, economic and cultural middle class, in order to advance the country as a whole,” Hassan lamented. In his quest for solutions, Abdel-Meguid insisted that a “sound economy” should be sought to save Egypt’s “missing middle class.”

“No one is saying that the socialist system should be brought back, but controlling prices should be one of the priorities of the government,” Abdel-Meguid said. “Enforcing laws that protect consumers is also crucial. Solving the chronic problems of unemployment and the poor educational system will also help. And finally and most importantly there is achieving justice and equal opportunities for all the people.”

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