Wednesday,18 October, 2017
Current issue | Issue 1125, 6 - 12 December 2012
Wednesday,18 October, 2017
Issue 1125, 6 - 12 December 2012

Ahram Weekly

Dictatorship won’t save the economy

Instead of being plunged into strife and theocratic dictatorship, what Egypt really needs is some sound policies to move the economy on, writes Ahmed Al-Sayed Al-Naggar

Al-Ahram Weekly

The constitutional declaration promulgated by President Mohamed Morsi, which eliminates judicial checks on his decisions, laid the last cornerstone for a full-fledged dictatorship. He had already held full executive and legislative powers. Now his powers are supreme. In the 1930s, Hitler succeeded in building up his dictatorship through impressive achievements in lifting Germany out of the economic depression in the 1930s, by building major military and civilian industries, creating jobs for the unemployed, raising standards of living and fighting poverty. In Egypt in 2012, Morsi, who has striven to amass Hitlerian powers in his hands, can boast of no achievements of note in rescuing his country from a crippled economy and fighting unemployment, let alone in building up a military-industrial complex that would set Egypt on the path to becoming a world power such as the Third Reich before its demise after Hitler dragged it and the rest of the world into a massively destructive war. With no successes to speak of under this belt, Morsi with all his powers has become the farcical image of the great dictator.

It is truely astounding that a president who was elected after a great popular revolution against a dictatorial regime would imagine that he could resurrect dictatorship in a form more authoritarian than its predecessor, indeed, blatantly fascist with a quasi-religious cloak. Did he imagine that the people would remain silent or that he could escape the consequences of this crime against the people and their revolution? More ironic yet, he won the presidency on the strength of the votes from the pro-democracy forces that had ignited and led the revolution against the Mubarak dictatorship. Surely people recall that in the first round of the presidential elections he won only 5.7 million votes that largely came from his fellow Muslim Brothers and their supporters. It was in the second round that he received 13.4 million votes, which came from the liberals, leftists and Nasserists who could not bring themselves to vote for Ahmed Shafik who symbolised the former regime.

It was these pro-democracy forces and democracy, itself, that he turned against with those articles in his constitutional declaration that immunised the Constituent Assembly that had been created by a dissolved People’s Assembly so that it could push through a constitution that lays the foundation for sectarianism, religious discrimination and gender inequality and opens the doors to the creation of squads of religious police and other such phenomena that will drive the nail into the coffin of the possibility of a modern state in which the rule of law prevails and the police are politically neutralised so as to serve the citizens as a whole without discrimination. To top this off, the army as a chief instrument of the nation state will be entirely sidelined in favour of a sectarian military establishment on the lines of the Iranian Republican Guard, for the simple reason that theocratic dictatorships do not trust an army that is not squarely and ideologically on their side and under their control.

All these measures that threaten to destroy the modern state that Egypt has gradually constructed during the past two centuries have plunged the country into political turmoil and galvanised enlightened political forces into forming a national salvation front to counter the new appalling despotism being practiced by the president.

It is one thing when demonstrators stage peaceful protests and the authority against which they protest either responds entirely or partially to their demands, negotiates with them or even rejects them while the agencies of government deal with demonstrators in accordance with the law. It is another when the president and the Muslim Brotherhood to which he belongs orchestrate counter demonstrations, peaceful or otherwise, for the purpose of igniting strife and perpetuating themselves in power. This is a typical ruse of fascist regimes that make no differentiation between the state and the ruler and the fascist organisation to which he belongs, regardless of how this may destroy the social fabric.

Under the tendentious draft constitution manufactured by the Islamist dominated Constituent Assembly, the new pharaoh will be mightier than his predecessor. He will have the power to form a government and dismiss it. He will be the chairman of the Supreme Council of the Armed Forces and the chairman of the Supreme Council of the Police. He will have the power to appoint the judges on the Supreme Constitutional Court and the heads of the regulatory agencies that are presumably meant to monitor how he and his government handle the public purse. He will have the power to appoint the heads of public organisations and the public prosecutor, and the power to appoint and dismiss both civil and military employees. He will have the power to declare a state of emergency.

Under Article 104 of the draft constitution, the president can paralyse the legislature since he will be able to veto any bill and his veto can only be overridden by a two-thirds majority of parliament. What this suggests is that the Muslim Brothers and Salafis fear that they will not be able to win in the next parliamentary elections. So, just in case, the drafters of the constitution gave themselves a trump card in the person of the president, a man from their tribe, who will be empowered to obstruct any legislation passed by a parliament whose majority does not reflect their will.

In the face of that bleak future, it is difficult to picture Egyptian entrepreneurs rushing to make new investments. It is harder to imagine an influx of foreign investment into a country whose president is propelling it towards the precipice of chaos and violence because of his Muslim Brotherhood’s obsession with grabbing all powers and, in the process, destroying the conscience of the nation as embodied in the judiciary.

But curiously, as gloomy as an economic portrait Morsi may paint as he tours the world soliciting aid much as his predecessor had, and in spite of Egypt’s huge domestic debt crisis (LE1,182 billion) and foreign debt crisis ($35 billion), an unemployment rate that officials place at 12.6 per cent and that I believe is closer to 27 per cent, and a poverty rate of around 45 per cent of the populace, Egypt actually possesses all the ingredients it needs to become economically self-dependent and dispense with borrowing from abroad. Above all, it has a huge diversely skilled and relatively inexpensive labour force. Its unique geopolitical location, alone, could attract considerable levels of foreign direct investment. It has huge reserves of natural gas and mineral and quarry wealth that can immediately serve as a platform for a large number of manufacturing and processing industries that would add to the GDP and generate numerous jobs. It has water resources that, if properly regulated, can be used to increase the area of cultivatable land and it has a large agricultural sector whose productivity can easily be doubled or tripled through sound agricultural policies (currently around a third of Egypt’s fruit and vegetable produce goes to waste in seasons when supply exceeds local demand and the surplus is not exported).

What Egypt needs is not dangerous and destabilising power grabs but an effective and efficient socio-economic system that encourages free thought and initiative. On the question of loans and fiscal policy alone we can come up with numerous and innovative alternatives for developing indigenous resources and generating sustainable and renewable autonomous sources of revenues that would free us from the cycle of debt. Here are a few possibilities:

- Reform of the subsidy system so as to cut the flow of subsidy allocations to the wealthy, tourist resorts and other capitalist ventures that do not need to be subsidised. In tandem, government bakeries, brick factories and public transport vehicles should be converted to natural gas which, according to the 2011/2012 figures, would save up to LE75 billion out of the LE95.5 billion that is spent on subsidising petroleum products as well as LE5 billion out of the allocations for electricity subsidies.

- Reform the law regulating the management of mineral wealth and the fees for its usage which, due to inflation, have declined to close to zero (two piastres per tonne of limestone and 20 piastres per tonne of granite, for example). These fees were set in 1956 at a time when the state monopolised the use of these resources. The private sector has since entered this sector and takes advantage of these low fees in a manner that leads to the plundering of the public’s natural wealth. A new law should raise the fees of mineral and quarry exploitation to current rates that would immediately add another LE25 billion to the national treasury, according to the estimates of the General Organisation for Mineral Wealth.

- Reform the government interest rate on treasury bills and bonds so that the rate does not exceed two percentage points more than the interest rate offered in commercial banks for savings accounts. This measure will greatly reduce the huge domestic debt burden (interest rate payments came to LE133 billion in the current budget).

- Overhaul the tax structure to introduce an equitable, multi-tiered gradated system and introduce a net capital gains tax on stock exchange transactions accumulated in two-year periods, on real estate sales, and on interest payments on savings accounts. As I conceive it, such a multi-tiered gradated system would levy a 40 per cent tax on incomes over one million pounds a year (instead of the current 20 per cent that is exacted on incomes ranging from LE40,000 to LE10 million and 25 per cent on incomes above LE10 million). As for corporate taxes, I would suggest starting with a 10 per cent income tax on companies that earn LE40,000 and LE100,000 a year. The rate would then increase by five per cent increments on corporate incomes in the following brackets: LE100,000-LE250,000 (15 per cent), LE250,000-LE500,000 (20 per cent), LE500,000-LE1 million (25 per cent), LE1 million-LE10 million (30 per cent) and, finally, LE10 million and over (35 per cent).

In addition, tax exemptions should be lifted from the business ventures of the National Service Apparatus (civilian ventures) that falls under the Ministry of Defence, so as to safeguard the principle of fair competition. Tax exemptions should also be lifted from the profits of poultry production plants, apiaries and livestock farms, fisheries and fishing vessels all of which sell their products at high prices that, in the case of meat products, are three times the global rate.

As an indication of how the above tax structure compares to that in other developed and developing countries, in the US the federal income tax on persons with annual incomes over $373,000 is 35 per cent on top of which eight per cent is deducted in the state tax. Corporate taxes in this bracket are 40 per cent. In Japan, citizens with annual incomes over $182,100 pay 50 per cent in taxes and companies pay 41 per cent. The rates in Germany are 45 per cent for persons with incomes over LE334,500 and 29 per cent for companies, and in France they are 40 per cent for personal incomes over $92,900 and 33 per cent for companies. The personal income tax rate is even higher in Denmark, with 62 per cent levied on incomes of more than $62,300, while the corporate tax is lower, at 25 per cent. In China, the largest emerging country as a recipient of foreign investment and one of the top three centres for attracting direct foreign investment, the personal income tax rate is 45 per cent for incomes over $175,500 and 25 per cent on commercial profits. The rates in Thailand are 37 per cent for personal incomes over $113,200 and 30 per cent on commercial profits, while in South Africa they are 40 per cent for personal incomes over $63,000 and 35 per cent on commercial profits (The World Bank, World Development Indicators 2010, p312-314).

The renewable revenues that would accrue from restructuring our income tax system could within a single year surpass the amount of the loan that is currently being negotiated with the IMF.

- Introduce strict changes on the prices of natural gas exports to Turkey, Spain and Jordan so as to bring them up to international rates. The contracts that offer these countries our natural gas at ridiculously low and fixed rates were concluded by a corrupt regime that was solely interested in lining its own pockets and, therefore, should be considered corrupt contracts. Moreover, there are precedents for such an action. For example, after its criminal occupation of Iraq, the US cancelled all oil contracts that it had previously signed with Saddam Hussein on the grounds that he no longer represented the Iraqi people. By readjusting the prices of our natural gas exports in a manner that truely reflects the interests of the Egyptian people, an additional LE15 billion per year would flow into our national treasury.

- The principle of redress would similarly be applied by introducing a depletable wealth tax on all domestic and foreign firms operating in the oil and natural gas sector. Most of the current production franchises in this sector were concluded in the 1990s when the price of oil was $17 a barrel and the conditions of these contracts remain unchanged in spite of the fact that the price now exceeds $100. Some compensation for this can be realised by means of the aforementioned tax, which other countries, such as Algeria, have introduced.

- Put an end to the anarchy of “advisors” in the government and public sector. “Advisors” in this case being the rubric by which certain people past the age of retirement but with the necessary connections are kept on the government payroll. Collectively, they continue to receive about a sixth of the allocations for salaries, allowances and other such items. By striking them from payrolls, the money saved could be channelled into reforming pay scales in general, while it would simultaneously reduce a large burden on the national budget.

- It is time that more serious efforts are devoted to actually collecting the taxes owed by large entrepreneurs and companies. There is an estimated LE63 billion in outstanding tax bills among this sector of the population and up to LE126 billion lost through tax evasion. Needless to say, recuperating such huge sums of money owed to the government and introducing stricter systems for tax collection would contribute to sparing us from the need to borrow from the IMF or elsewhere.

- Review the LE3 billion export subsidy that was included in the last budget. In view of the corruption that infested the ways in which this subsidy was used and distributed in recent years, it is clear that this money would be put to better use if allocated to healthcare, education or reforming the government salary structure. Or simply by cutting such a huge expenditure, we would further be able to spare ourselves the political and financial burdens of foreign loans.

The writer is a rearcher at Al-Ahram Centre for Political and Strategic Studies.

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