Nahlah Ayed: Morsi's Egypt hitting the economic wall

CBC
Gas station staff in Cairo try to contain a lineup of drivers waiting for cheap diesel subsidized by the state. Lineups can last four hours on a typical day.
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Gas station staff in Cairo try to contain a lineup of drivers waiting for cheap diesel subsidized by …

At a busy Cairo gas station just west of the Nile, the afternoon lineup has become so disruptive that dozens of drivers are forced to wait their turn on the other side of the road.

Among them is Ayman Said. With a practiced, three-point turn, he eventually wheels his van right up to the diesel pump to fill up.

It took him nearly four hours to get there — as it does almost daily.

"It's bad management," says Said, who transports tour groups for a living. "We've been at this for six or seven months. And in that time, how many hours have I waited?"

Everyone in the line suffers, but Said must contend with a triple blow.

The hours he spends waiting to fill up shrinks his working day by half. Meanwhile, the tourism industry is in shambles, reducing the number of customers. And whatever money he does make is worth less with each passing day because of Egypt's rising inflation and devalued currency.

The challenges in Said's life are, in many ways, a reflection of his country's mounting economic woes.

Big hits to the country's tourism industry, foreign investment and spending power have made a serious dent in Egypt's financial health.

As it enters the third year after its revolution, Egypt finds itself in a downward economic spiral that not only threatens individual livelihoods, but also the country's stability.

"The fact that Egypt is in serious trouble — there is no doubt about that," says Amr Hassanein, a financial expert who teaches at the American University of Cairo.

One of the biggest of the post-revolution setbacks facing President Mohammed Morsi and his Muslim Brotherhood government is tourism, a key pillar of the economy.

Tourism has yet to recover to pre-revolution levels, and the knock-on effects are significant: more unemployed and underemployed, for starters. And smaller foreign reserves ($13 billion, down from $36 billion just over two years ago), which in turn means less money available to import necessities like wheat and fuel.

The fuel shortages have led to rising food prices and increased power cuts, and are affecting transportation and manufacturing. For a time last month, anger over them paralyzed Cairo's streets when microbus drivers shut down some of the main roads in protest.

A holdover problem, exacerbated by the uncertainty surrounding the revolution's aftermath, has been the vast and expensive subsidy system the government maintains to lower prices of such staples as fuel and bread for the many Egyptian poor.

The increased cost of subsidizing fuel alone has meant a growing budget deficit expected to hit some 12.3 per cent of GDP this year, which is approaching where bailed-out Greece was at its peak in 2009.

Coupled with the continuing political instability, these economic woes have led to the steady devaluation of Egypt's currency.

It is with all that in mind that a significantly poorer government has just restarted stalled negotiations with the International Monetary Fund to secure a $4.8 billion loan that could save Egypt from its own version of a fiscal cliff.

An IMF delegation arrived for high-level talks in Cairo last week. And, to show it can repay the loan, the Morsi government is contemplating budget cuts, including trims to the system of costly subsidies, which currently benefit everyone, poor and rich.

"The cost of energy had escalated dramatically in the past five or six years so the energy subsidy in particular has gotten multiplied," notes Hassanein. "So we all knew that this cannot continue."

However, with new parliamentary elections likely coming later this year, the government is wary about making radical changes prior to a vote that the dominant Muslim Brotherhood's Freedom and Justice party is expected to win handily.

It is also refusing to accept the blame for the constant fuel shortages — and allegations of "bad management" — charging that corrupt middlemen and former Hosni Mubarak-era loyalists all play a part.

The old guard is trying to use the fuel and bread shortages to its political advantage, says FJP spokeswoman Dina Zakaria. It is trying to "make people say 'you see, the revolution was not for your own benefit'."

Still, the government has already raised the price of subsidized cooking gas, and is now signaling that ending all subsidies is inevitable.

"We are considering raising salaries, while lowering subsidies until we can, in three to five years, end subsidies completely," Oil Minister Osama Kamel said in an interview that dominated most of a page in Thursday's state newspaper al Ahram.

It seemed a message directed at the visiting IMF officials — and a skeptical public.

Ending government subsidies at this point, however, risks riling a populace frustrated with lack of economic improvement and struggling to make ends meet.

The last time anyone attempted it, in 1977, saw the kind of bloody riots that have dissuaded anyone else from trying since.

Like many Egyptians, Said, the tour bus operator, agrees there's only trouble in ending fuel subsidies. It would be "a disaster," he says, a view that explains why so many Egyptians are also mistrustful of the IMF.

Even as negotiations went on last week, dozens of protesters gathered at Egypt's high court to denounce the prospective deal.

"Who does the IMF loan benefit? The overfed fat cats," shouted the crowd, some of them carrying signs calling it "the loan of humiliation and shame."

Hassanein says that aside from wanting assurances that Egypt can pay back this loan, the IMF also wants the Morsi government to take steps to avoid the kind of chaos and unrest that seem to return with disturbing regularity here, keeping away investors and tourists alike.

For one, it wants Egypt to commit to easing some of the austerity measures it is planning to ensure minimal effect on marginalized groups and avoid revolt.

Indeed, many Egyptians intensely fear what they call a "revolution of the hungry," if the economy doesn't soon improve.

Security is also key to inviting investors to return. But security cannot be guaranteed without a political deal between Egypt's opposing political forces, which, Hassanein says, the IMF wants alongside a repayment scheme.

Such a political deal has proven elusive since Morsi became president 10 months ago, and seems unlikely in the short term.

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