Sunday,23 September, 2018
Current issue | Issue 1154, (27 June - 3 July 2013)
Sunday,23 September, 2018
Issue 1154, (27 June - 3 July 2013)

Ahram Weekly

Unkept promises

Mediocre management of the economy has been one of the main features of President Mohamed Morsi’s first year in power, writes Sherine Abdel-Razek

Al-Ahram Weekly

Positive economic indicators during the last years of the rule of ousted former president Hosni Mubarak, a growth rate that hovered around seven per cent, robust foreign direct investments, strong tourism revenues, and a stable exchange rate all put Egypt among the world’s best-performing emerging markets, but these things failed to improve the lives of the poor.
The benefits of economic growth were unequally distributed, and the subsequent frustrations led to the 25 January Revolution and its main slogan of Bread, Freedom and Social Justice.
When the race to elect Egypt’s first post-revolutionary head of state started, it was only to be expected that promises of better living standards would top the campaigns, and that of Mohamed Morsi, the Muslim Brotherhood candidate, was no exception.
Based on the group’s Renaissance project, Morsi’s plans were seen as a continuation of the same liberal economic policies followed by the Mubarak governments, but this time with an Islamist twist.
Morsi promised to fight poverty and unemployment through the Islamic alms of zakat, the waqf charitable Islamic trusts, and a planned expansion of Sharia-compliant banking services and the introduction of Islamic bonds, or sukuk.
Another prominent part of the programme was the targeting of $200 billion of foreign investments that members of the group said they had already agreed with many Arab investors.
Morsi won the elections and came to power at the end of June 2012. However, while the economy was hardly thriving a year ago, things have got steadily worse since then.
The lives of many people have become anything but easier, as they struggle to make ends meet amid runaway prices, spending hours in queues waiting to buy petrol, for example, a new kind of suffering that adds to what they face at home, where they often find they have no power or water.
The $200 billion worth of foreign investments that the Renaissance project promised boiled down to just $1.4 billion in foreign direct investment in the first nine months of Morsi’s tenure, a mere $200 million increase on the year preceding Morsi’s taking charge.
Lack of investment has made it hard for the economy to provide job opportunities either to fresh graduates or to those losing their jobs due to the economic slowdown. Unemployment increased to reach 13.2 per cent in the first quarter of 2013, compared to 12.5 at the end of the first quarter of Morsi’s rule. This translates to a loss of around 180,000 jobs over a six-month period.
Increased costs of production due to a rising dollar, imported inflation, and local supply bottlenecks due to less available diesel fuel needed for transport have fed uninterrupted increases in local prices. Egypt’s annual urban inflation rate came in at 8.2 per cent in the 12 months preceding May, with most of the increase being attributed to hikes in food prices.
While Morsi promised in his presidential campaign to increase spending on education to five per cent of GDP, his first budget puts this figure at LE81.3 billion, equivalent to four per cent of GDP. The average in the MENA region is 5.2 per cent.
The budgetary allocation for health spending was LE32.7 billion, which is 1.6 per cent of GDP and compares to an average of 2.7 per cent in the group of poor countries and to 1.5-1.9 per cent before the revolution.
As investments sank amid the political unrest, economic growth rates subsided and fewer people found new jobs. More worrisome still has been the deterioration in state finances, and with dwindling foreign reserves it has become harder to protect the local currency from hitting new lows or for the government to pay for imports or service the country’s escalating foreign debt.
Egypt has seen challenging economic times before, but the calibre of the people in power made it easier for the country to weather such hardships.
The members of Morsi’s economic team, as well as those serving on other ones, were chosen according to their affiliation with the Muslim Brotherhood, something that has been reflected in what many experts and businessmen have seen as the amateurish way the economy has been managed, even as it has had to muddle through myriad problems.  
Moreover, the regime has failed to gain the support of local businesses. Moves like banning members of the Sawiris family, Egypt’s richest and most influential Coptic business family, from travelling, freezing the assets of 23 businessmen who have still not been found guilty of irregularities in the sale of the Al-Watany Bank of Egypt, and not consulting on the decision-making process, have pushed businessmen to put expansion plans on hold and keep their distance from the regime.
While the government has sought agreement with a number of once-tainted Mubarak-era business leaders in order to lift investor confidence, the reconciliation attempts, engineered by influential Brotherhood member Hassan Malek, have not yet succeeded in convincing businessmen to return to Egypt from abroad.
Rather than look at serious plans to deal with the country’s ballooning budget deficit, expected to be 11.5 per cent by the end of this month, the government has focused on borrowing, whether internally through treasury bills or externally through various forms of loans.
While the $11 billion increase in foreign debt throughout the year, including deposits and loans from Qatar, Libya and Turkey, failed to take the faltering economy out of its problems, burdening it with huge debt-service bills, the government’s main priority has been to secure a $4.8 billion from the IMF.
It has highlighted the fact that the IMF deal could help shore up investor confidence and assuage donor concerns after two years of political instability. However, the deal has not yet been signed, as the government is hesitant to introduce socially-sensitive changes like increasing taxes and lowering subsidies, given the effects such measures could have on the country’s already over-heated streets.
While the government has boasted improvements in certain figures throughout the year, a closer look reveals the increases to be largely cosmetic. The growth rate in the first nine months came in at 2.2 per cent, compared to 1.8 per cent a year earlier, for example. However, the bulk of this was fed by increases in consumption, mainly due to hikes in prices.
Official figures show that the number of foreigners travelling to Egypt in the first four months of 2013 rose 11.8 per cent from a year earlier, after falling by a third in the year after the revolution. The first three-quarters of the fiscal year saw tourism revenues rise to $8.08 billion, up 14 per cent on a year earlier.
However, analysts question the reliability of these figures as the number of visitors includes Syrian refugees fleeing unrest in their country and the revenues are based on estimates of average spending per tourist and not on the actual money spent.
Moreover, the bragged-about improvement in the trade deficit was based on an increase in exports due to the hike in the price of dollars. The country’s trade deficit has narrowed 2.7 per cent to $23.8 billion.
The decline in the net outflows of portfolio investment in Egypt in the first three-quarters of 2012/2013, to register $790.9 million compared with $4.6 billion a year earlier, was mainly ascribed to foreigners’ dealings in Egyptian treasury bills and bonds.
Such figures have largely stripped the regime of its credibility both locally and internationally.
Non-transparent and sudden decisions have been made regarding economic management over the last 12 months, and many people will remember the package of Morsi-approved taxes, revealed one evening last December only to be scrapped by the president himself at 2am the following morning.

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