Wednesday, March 27, 2013

Reforming Egypt

"Egypt needs reforms in subsidies, customs duties, tax systems and transparency", executive director and director of research, Magda Kandil at the Egyptian Center for Economic Studies says, stating the obvious.

Back when Egypt was in pretty good financial shape compared to what it is now experiencing, then-President Hosni Mubarak felt it was time to begin the process of gradually weaning Egyptians off state-subsidized prices for energy, for cooking oil, for basic foods, like bread. The outraged resistance that move met with led to a fairly swift withdrawal, and the move shelved.

Even when Egypt's manufacturing, export and tourism industries were in fairly decent shape, the mass of the poor required a quasi-avuncular state, ensuring the availability of basic needs being met, to restrain people's instinct to revolt under oppression.

Now, with the appearance of a theocratic political apparatus intent on moving a once secular-based government toward inevitable Sharia law and strict Islamic principles, the outcome of the revolutionary zeal that led liberals, secularists, unionists to decry tyranny and demand employment, more access to staples of existence, and the liberty that would lead to equality, faces their new reality of a secular dictator replaced by a religious one. And Egypt's economy is crashing.

The violence and endemic crime that always existed in the underbelly of society has surfaced to become more visible, more everpresent, more violent. Women's public safety is continuously endangered by a sexist society forgoing all restraints with the growth of general lawlessness. The government security forces are incapable of controlling societal strife and outrage against the Muslim Brotherhood's transparent moves to tyrannical rule.

Vigilante action has been encouraged by government security, convincing civilians that they can do their bit to aid in controlling crime. A move that the Salafists have taken up with great enthusiasm. The predicable result of all this, that as the confidence in the government has shattered and the hope that the economy would soon recover, was dealt a blow. The IMF insists on measures to be taken before it will loan the billions Egypt needs to put it back on track.

Foreign investment is sitting on its well-endowed hands. Tourism has collapsed, sending a spiral of even greater unemployment to strike Egyptians accustomed to working hard for the bread they buy at government-subsidized prices. Food scarcity has become a distinct problem as Egypt, once considered a Middle East breadbasket, capable of feeding its own and exporting grain as well, now has become the world's largest importer of grain products.

Not only are opponents of the new Egyptian Muslim Brotherhood-led government continuing to wrack the country with violent protests, but the factions supporting government are clashing with government opponents. President Mohammed Morsi's government sees no way out of the financial trap they have become mired within, and moved to remove government subsidies from some energy forms, with ration cards established for gasoline.

The government's refusal to dismiss some of its ministers and instead absorb opposition leaders to form a unity government ensures that the protests will continue. Those protests, the rising numbers of the poverty-stricken, growing unemployment in tandem with a failing economy have created close to a perfect storm. Despite his assurances to potential foreign backers, investment has not resulted; reform is not in the near picture.

"For two years, this risky tactic has repeatedly met with defiance rather than conformity. It also leaves the government with very little help in bringing spending under control as the cost of borrowing continues to spiral, and further imbalances to the economy push Egypt deeper into a balance-of payments crisis", observed Mohamed Darwazah, a U.S. based economist.

Government subsidies for bread, gasoline and cooking oil are set to undergo change. A confidential source in the Ministry of Oil claims government is planning the cancellation of cooking fuel subsidies because of the millions of dollars those subsidies cost the financially-flailing economy. "This is insane, the losses are tremendous", he warned.

As though Egypt is not in sufficient travails; political, social, economic. It remains to be seen in the near future how many of Egypt's 80-million population will take to rioting in the streets with the wider spread of subsidy cuts, beyond the currently instituted one where people have seen gas rationed to 150 litres a month paying (heavily subsidized) $0.13 for 80-octane and $0.26 for 90-octane.

"Once again, politics will trump economics. Morsi is facing a fresh attack on his legitimacy, to which he has responded with a stick rather than a carrot", concluded Mohamed Darwazah.

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