It is easy to get weighed down in the debate over energy subsidy reform in Egypt.
After all, the Egyptian government has done a good job of confusing us by announcing a multitude of different measures that have mostly evaporated into thin air.
In fact, major government measures have actually aggravated the problem.
In December, the subsidy on 95-octane petrol used by the wealthiest Egyptians was scrapped. That drove some motorists to buy lower-grade fuel, raising the demand for subsidised 92-octane gasoline.
Then, in a bid to prevent smuggling and other abuses,the government restricted distribution of heavily subsidised low-grade gas oil used by trucks, tractors and buses to filling stations owned and operated by the military. All this caused was longer lines at the pumps and increased economic disruption.
Finally, in April, Egypt raised the price of subsidised cooking gas canisters to 8 Egyptian pounds (roughly $1.17) from the previous 5 pounds ($0.73) but this also sparked scepticism considering only poorer households use gas cylinders and the money raised from price lift was minimal.
Meanwhile, many other initiatives have not moved forward.
In November 2011, the cabinet issued a decree to end subsidies on natural gas to energy-intensive industries in January 2012, but this did not occur. Similarly, the minister of supply and internal trade announced a new coupon system for distributing butane canisters in September 2011. The plan would distribute 14 million ration cards to the neediest Egyptians. It was supposed to be initially implemented in two sparsely populated governorates, then rolled out to other governorates, but was not.
Finally, the government continues to delay a nationwide plan to introduce ration cards nationwide for subsidised fuel. Once slated for July (which itself was a delay from April) is now planned for September, the country’s new oil minister Sherif Haddara has said.
One thing everyone agrees on is that energy subsidies must be reformed and the current system is untenable. Here’s why, in a nutshell:
Egypt has a system of subsidies for commodities such as petroleum and flour that is hugely expensive and works very poorly.
It spends about 20% of its national budget on keeping down fuel prices for the general public even though it pays out more to support wealthier households whose fuel consumption is higher than in needier ones. The public debt is further swelled by the fact that, because of Egypt’s declining domestic output and the sporadic disruption caused by strikes, a growing portion of the subsidised petrol and natural gas is imported.
However, the Morsi government is unlikely to tempt fate by altering the fuel subsidy status quo amid the uncertainty over the parliamentary election expected in October.
So what is going wrong?
Apart from the general incompetence of the Morsi administration, experts in the oil industry reckon Egypt’s proposed reforms just won’t work and the country needs to rethink its approach.
Rebel Economy spoke to Johnny West, who runs OpenOil, an energy consultancy which promotes transparency in the oil and gas industry. This is a brief overview of what he would propose:
Any solution which involves calibrated targeting (like ration cards) will fail because there has not been any history of successful implementation in the past. Anything which involves targeted distribution, coupons or an allowance is going to be abused because it allows corruption or abuse of the system, and administrative error to potentially damage the system.
Plus the administration is under increased pressure and decreased capacity to deliver. It wasn’t even able to deliver in less-stressed times.
There’s a much simpler way to do this which is to create direct cash dividend which is absolutely flat for everyone in the population and therefore does not needed to be targeted. At the moment you have 93% of the gas subsidy consumed by 20% of the richest Egyptians, so this guarantees that everyone gets a fair share.
You would encourage the mobile phone networks, or any number of other ID systems to act as a food distribution network system. This type of system has also worked in far more degraded environments than Egypt, for example the United Nations used a similar food distribution network in Haiti after the 2010 earthquake.
In addition, 10% of Kenya’s gross domestic product is transferred using a mobile-phone money transfer service called M-Pesa. Egypt’s mobile penetration is almost 100%, so this system is realistic.
You wouldn’t liberalise all prices immediately but through quarterly implementations of staggered price rises over 5 years. Instead, all Egyptians would receive a dividend upfront so money is in their hand before any price rises take place.
Based on the 2010/2011 budget, you are talking about 30 Egyptian pounds ($4.30) per adult per month.
The system is entirely self-financing, and given the current urgency of the energy subsidy problem, Egypt would realistically implement this system, with very little preparation. You would need better demographic data of all Egyptians but than can be achieved in a month.
There’s an inbuilt bias, particularly against the Muslim Brothers, that this system is unfair as it subsidises the rich. Everyone would get a subsidy, including Naguib Sawiris, but our perspective is that energy resources are not government-owned but belong to the people.
In almost all countries of the world, apart from the USA and Canada, citizens are shareholders of the country’s resources and the government is only acting as steward on those resources. Therefore in all activities we see, revenues that would accrue from that would belong to the citizens.
One objection is that it is bad to give something for nothing, while another is that it represents a weakening of the government because the system is less reliant on the state. But we say the government is about legitimacy not control.
Ultimately, a flat dividend has a much higher chance of gaining political consensus than targeted saving which would see some not get any subsidy, and others receiving a monthly welfare package.
The cost of subsidies is also very much a global issue, costing $600 billion. There is massive consensus on the need to reduce but different perspectives on how to do this.
A flat dividend would address the urgent need to reform subsidies, gain broad consensus and be a first step to more complex calibrated systems further down the line.
More than two years after Egypt’s revolution, the country’s hunt for stolen assets is faltering. What started as an overly optimistic hunt for the former president’s ill-gotten gains with estimates as high as $70 billion, has evaporated to reveal the value of assets identified and frozen by foreign governments is disappointingly small and at little more than $1 bilion today.
Now the nation is at a critical juncture: either it jumpstarts its lifeless investigations or it strikes deals with members of the old regime.
Either way, it is not looking good for Egypt.
Farah Halime, the editor of Rebel Economy, spoke to Ashraf Khalil, TIME magazine’s Cairo correspondent and Bradley Hope, The National newspaper’s Cairo bureau chief, who have both conducted their own intense investigations into Egypt’s asset recovery efforts.
Neither are optimistic. Ashraf says Egypt’s prosecutor’s office is “unfixable”, while Bradley describes the antiquated offices of the Illicit Gains Authority.
Special thanks to Cairo-based radio journalist Merrit Kennedy, who produced this podcast.
Middle East economists and analysts have tried and often failed to answer Egypt’s million dollar question: Will the country’s economy collapse and, if so, when?
Finally, someone has crunched the numbers to give us an answer.
London-based economist Ziad Daoud pored over Central Bank data and reckons the scare-mongering (of which the media is to blame of course…) of Egypt’s imminent economic collapse is largely unwarranted.
Egypt needs to raise $11.7 billion in the next 12 months, according to International Monetary Fund estimates.
The task seems “formidable,” Daoud writes in his blog post, “especially without the help of the central bank’s foreign currency reserves which are near their minimum safety level.” Read More
A law that better regulates sukuk issuance has been mooted for several years, but the move to enforce a clear law became a priority after the revolution, especially considering the economic climate is increasingly being shaped by Islamic political parties.
So finally the “troubled passage for a bill” ends, Reuters reports and Egypt’s President Mohamed Morsi has approved a law allowing the state to issue Islamic bonds, or sukuk. Here’s the full bill in Arabic.
There are high hopes for sukuk to shore up Egypt’s flagging finances. Officials have thrown out figures to the public that signal these instruments could raise as much as $15 billion from domestic and foreign investors.
Well, I’m sorry to burst your bubble Mr President, but that’s not happening. Read More
First comes love,
Then comes marriage,
Then comes bickering over money.
Qatar and Egypt are turning out to be a predictable couple.
Qatar, the sugar daddy in the relationship, has provided more money to Egypt than any other Arab ally. With $8 billion in loans, grants and deposits, it is by far the biggest financial backer of the Islamist-led government.
As a bonus, it’s also thrown in gas supplies to cover any shortages over the summer period.
This gives the Qataris power and easy access to the Arab world’s most populous country, even if Qatar’s Prime Minister Sheikh Hamad bin Jassim al-Thani insists that Qatar “did not ask for anything in return”.
Meanwhile, the aid strengthens Egypt, the damsel in distress, in her time of need.
But the relationship is doomed to fail.
Egypt is asking for more for less, while Qatar is not getting much in return as it sees that its cash is merely sustaining a costly budget that needs restructuring and allowing Egypt to delay its economic plans.
So the tables have turned. Qatar, previously quiet on its demands, is asking for 5% interest on $3 billion of bonds it wants to buy from Egypt.
This is not a generous deal and is in line with normal market rates (for instance, look in comparison at the $4.8 billion loan from the International Monetary Fund and the meagre 1.1% rate attached).
What’s more, if Egypt goes to the debt markets to raise more money for its deficit, it will likely pay more than 5%. The yield on the Egyptian government’s $1 billion of benchmark 5.75 percent dollar-denominated bonds is around 7.1% in secondary markets, for example.
Egypt should consider Qatar a temporary donor, and one that is not looking out for its best interests.
It would be best served to expend its time negotiating energy contracts with Qatar because this is where Egypt is mostly struggling (energy subsidies are a huge weight on the budget and the inefficient system has led to fuel shortages that threaten livelihoods, cause nationwide electricity blackouts and miles-long queues for diesel).
Agreeing preferential rates on energy contracts with countries including Qatar, Libya and Iraq would be a huge boon for Egypt which spends almost two billion dollars every couple of months buying fuel, on top of the normal allocated amount in the budget.
Focusing on cash to buy Egypt’s debt and prop up its reserves is expensive and will only have to be re-paid later.
Egypt has the advantage with its Arab allies, who want a slice of Egypt more than it wants a slice of them. It’s time Egypt negotiated with this in mind.
هذا هو الجزء الثاني من سلسة ممتازة مكونة من جزئين من إعداد إيزابيل إسترمان وترجمة ريم مكين، تدور حول السندات الحكومية: أذون الخزينة وأدوات الدين الأخرى المباعة من قبل الحكومة (بما في ذلك الحكومة المصرية) لتسديد قروضها. الجزء الأول هنا.
هذه المرة ننظر إلى تأثير الإعتماد على السندات الحكومية لتغطية إحتياجات الإقتراض.
لا يوجد شك في أن إقتصاد مصر يعاني، لكن إذا انتبهت لإصدار السندات ونتائجها، فستجد أن الحلقة المفرغة من الدين مستمرة. طالما أن دين مصر ينمو أسرع من إقتصادها، فستصبح الأمور سيئة.
تحتاج مصر إلى تنظيم حساباتها عن طريق خفض الإنفاق (إعادة توزيع الطاقة والدعم على الطعام هي الأشياء الأولى البدء بها) ورفع العوائد (زيادة الضرائب، وإدخال التمويلات العسكرية والوزارية داخل الخزينة إن أمكن). إذا لم يتم ذلك بطريقة صحيحة، فمن الصعب تجنب الإضرار بالضعيف أو إغضاب القوي، ومن الصعب رؤية كيف تمتلك الإدارة الحالية القدرة السياسية للقيام بذلك.
هذا هو الجزء الأول من سلسة مكونة من جزئين من إعداد إيزابيل إسترمان وترجمة ريم مكين، تدور حول السندات الحكومية: أذون الخزينة وأدوات الدين الأخرى المباعة من قبل الحكومة (بما في ذلك الحكومة المصرية) لتسديد قروضها.
في السنتين الماضيتين أعتمدت مصر بشدة على البنوك المحلية في محاولة لتقليل العجز وتمويل إحتياجات القروض.
اقتراض المال من المقرضين يشبه إلى حد كبير إقتراض شخص من البنك: يُقيم البنك تاريخ رصيدك، تقترض مبلغ X من الدولارات وتدفع Y في المائة فوائد.
إصدار السندات مشابه جداً لهذا المثال
الرسم بأسفل هو مقدمة عن السندات الحكومية والغرض منها. نشرح المزيد عن ما تسببه لمصر في الجزء الثاني.
Rebel Economy spoke to Monica Marks, a Tunisia-based Rhodes Scholar and doctoral candidate at St Antony’s College, Oxford, who debunks the myth that Tunisia was a bastion of liberalism in North Africa. She explains that too many bought into former president Zine El Abidine Ben Ali’s idea of a “Tunisian Miracle”.
Two parts of this question are problematic: the supposition that Tunisia had a ‘liberal social system’ before the revolution, and the implication that Ennahda’s Islamism poses the largest threat to Tunisia’s economic future.
Tunisians of all ideological stripes (save for a few Salafis) tend to praise their society for being more tolerant and open than elsewhere in the region, particularly Arab countries to the east such as Egypt and Saudi Arabia. Tunisian society is notably less conservative on a number of fronts—women enjoy more legal protections, public schools are co-ed, alcohol can be procured easily in many parts of the country, and some restaurants stay open during Ramadan.
It is important to note that when observers (particularly foreign observers) characterize pre-revolutionary Tunisia as socially ‘liberal,’ they are often basing this on two simple factors: (1) Tunisia’s post-independence leaders (Bourguiba and Ben Ali) are almost always described as ‘secularists’, and (2) Tunisia’s 1956 Personal Status Code, which is still in effect, granted women more rights than elsewhere in the MENA region and included the Arab world’s only prohibition on polygamy. Taken together, these factors—the secularism of state leaders and women’s advanced legal status—are often enough to prompt commentators to call Tunisia’s society and pre-revolutionary government ‘liberal.
But Tunisian society before the revolution was, in many ways, anything but liberal—at least in terms of its relationship to the state.
Journalists who spoke out against the government would face salary suspension, firings, and harassment at the very least. Critical bloggers were threatened with imprisonment, and some chose to self-deport out of fear of long sentences and/or torture. Real or suspected members of Tunisia’s Islamist movement, Ennahda, faced years of incommunicado detentions, torture, and post-carceral oppression (being blacklisted from employment, being forced to register their names up to five times per day at local police stations, etc.). Leftist activists, though a much smaller group, faced similar brutality. Judges who spoke out against the regime had their salaries suspended without notice, and human rights leaders—such as the prominent lawyer and anti-torture activist Radhia Nasraoui—dealt with near-constant harassment from the regime’s goons in their homes and offices.
Despite Tunisia’s much-vaunted claim to progressivism on the matter of women’s rights, more religiously conservative women, particularly those expected of involvement in Ennahda, underwent myriad forms of abuse, including having their hijabs ripped off by police officers, undergoing long periods of arrest and unofficial detention, and being sexually harassed and abused by security forces. Religious expression was seriously curbed—young men who wore beards were often arrested on suspicion of being Ennahda members, women who worked in state facilities such as schools were generally not allowed to wear the hijab, and police officers were routinely stationed in mosques to monitor Friday sermons.
All of this is to say that we must think critically about this dichotomous picture that is often presented to us in local and international (particularly French and English) media, of Tunisia being a dramatic ‘before and after story’—i.e. a liberal, progressive society before the revolution that has quickly regressed into a sort of Islamist-led backwater.
This is far from the case. What we are seeing after the revolution is a great deal more contestation in the public sphere. Ben Ali held the lid of oppression very tightly. Now the lid has flown off the pot, and long-percolating differences in Tunisian society are finally bubbling to the surface. In some cases, those differences have bubbled over into acts of violence and criminality (such as the June, 2012 protest against the Abdeliyya art exhibit in La Marsa, repeated Salafi attacks on Sufi shrines, etc).
Islamism is nowhere close to being the chief threat to Tunisia’s economic future.
Rest assured, Tunisia faces major challenges on the economic front: for starters, the public contestation which I mentioned above often manifests itself in the form of strikes and socio-economically motivated protests.
Though major strikes happened under Ben Ali (most notably in Gafsa in 2008), such acts of protest were generally met with swift oppression. The regime used a mixture of police brutality and economic mollification to keep protesters at bay (eg: giving 200 dinars a month to citizens in restive southern areas through bogus public programs—not enough for a decent quality of life, but just enough to keep hungry mouths from protesting in the streets).
After the revolution, a kind of laissez-faire democratic atmosphere started to pervade the country. The state’s monopoly on all forms of authority receded, and people began to express their preferences and grievances about all topics—political, religious, socio-economic, etc.
So strikes have been a major problem for Tunisia’s interim governments, and the transitional government led now by Ennahda. Naturally, foreign direct investors aren’t keen to pour money in a country where strikes are so frequently closing factories. There are other major problems plaguing Tunisia’s economy: poor educational quality, underdevelopment in the interior, the presence of bloated public companies and the huge informal economy.
In my conversations with leading economists speclialising on Tunisia at the World Bank, International Finance Corporation and African Development Bank, I have heard across the board that Ennahda “could not have done much better” on the economy over the past two years, that the challenges are huge and often of a structural nature. So there are a number of major obstacles for Tunisia’s economy here, but Islamism doesn’t seem to be one of them.
Along with underdevelopment in the interior, youth unemployment is one of the leading economic challenges for Tunisia. These are also important political challenges, since the 2011 revolution – which started with a young vegetable seller’s protest in an impoverished interior town, Sidi Bouzid – which are prompted primarily by socio-economic grievances. The nexus of youth unemployment and regional marginalization in the interior was critical to the revolution, and many ministers and leading economic advisers in Tunisia’s government fear persistent challenges on these fronts might spark a second revolution.
Youth unemployment hovers between 10 and 30%, depending on what region of the country you’re looking at. But current, reliable statistics on things like youth unemployment and literacy rates are difficult to find. That’s because Tunisia’s National Institute for Statistics (INS), along with the leading international development banks here (including the World Bank and the African Development Bank, which is actually headquartered here), have been scrambling to re-diagnose the country’s basic indicators in the wake of the revolution.
Ben Ali very much manipulated the INS, and the international banks will frankly tell you that they bought into Ben Ali’s idea of the “Tunisian miracle” too much—i.e. that they didn’t do enough work to really go beyond the manufactured stats and get a good handle on the socio-economic indicators in the country before the revolution. As this research gets done, it’s becoming clear that literacy rates are lower than previously thought, and that youth unemployment is higher.
What we do know is that the economic situation in Tunisia—despite all its problems—isn’t nearly as dire as the situation in Egypt. While statistics on indicators like literacy may turn out to be about 10 percentage points lower than previously thought (in the low 80s as opposed to the high 90s), this still places Tunisia head and shoulders above Egypt, where literacy rates are around 50 percent. Tunisia desperately needs to reform its educational system to match graduates’ skills with the needs of the market, but there is a good basic educational infrastructure intact here, and the country has immense potential to build. I believe Tunisia could become a real educational hub in the region if the proper reforms and investments are made.
And what are the major factors responsible for youth unemployment in Tunisia?
There are about seven:
(1) the low value-added nature of the economy, which is geared toward benefitting offshore exporters more than developing skills at home;
(2) poor infrastructure in the interior, including roads, water supply, electricity, and internet access;
(3) an outsized informal economy;
(4) a partially closed economic structure benefitting large public companies, such as Tunis Air and Tunisie Telecom;
(5) the relatively low skills of many labourers;
(6) the poor quality of vocational training and the local perception that such training is only for poorly achieving students; and
(7) the significant mismatch between university graduates’ skills and the needs of the job market.
Again, referring back to the last answer, we must try and look at these things in a technical way—not getting too tied up in the secular vs. Islamist debates, which are so frequently dominating local and international headlines.
This is a critical question, and it’s one that’s not getting enough attention in my opinion.
From my work with the Institute for Integrated Transitions (IFIT), a newly founded Barcelona-based non-governmental organisation (my report, called “Inside the Transition Bubble: International Expert Assistance in Tunisia”, can be accessed in English or Arabic here) we looked at international expert assistance in four key areas of Tunisia’s transition: media, judicial, and security reform and youth employment.
In the youth employment sector, one of the most intriguing things to come out the research was that key policy makers in the troika coalition (most often from Ennahda and the secular CPR party) often feel deeply confused by and frustrated with the international advice they are receiving.
Many lamented Tunisia’s lack of in-house ability to diagnose domestic economic problems.
“We are forced to rely on internationals who take our data, then go and formulate plans and projects for us without ever explaining how they got from the data to the plans and projects,” one ministerial adviser who asked not to be named said.
One quote that I cited in the IFIT report was from Jameleddine Gharbi, Minister of Regional Development and Planning. “They come with an already determined vision and only want to focus on a specific subject,” he said, referring to international experts. And:
“The needs in the interior are critical, but they don’t look there… We point, we say ‘Look—this is our problem.’ But then they point and say ‘no—your problem it is here.’ It’s as if I have a red folder and they try to convince you that no, it’s blue.”
The most disturbing quote I heard on this theme during the course of interviews was that certain international advisors, whom my interlocutor wouldn’t name, advised the government to [completely] cancel [rather than reform] key subsidies on basic goods like cooking oil and bread. I have not verified this information, but fortunately the subsidies—which are absolutely critical for Tunisia’s poorest citizens—are still in place.
Egypt’s deputy finance minister, Hany Kadry Dimian, has left his post after six years in the ministry, a source at the finance ministry told Rebel Economy, delivering a blow to the country’s chances of concluding a loan agreement with the International Monetary Fund.
Mr Dimian, who has served as the deputy since 2007 and survived all of Egypt’s five finance ministers in the two years since the revolution, will leave “at the end of this week”, according to the source who did not name his successor.
While the nature of Mr Dimian’s departure is unclear, the timing sends a bad signal to international policy makers and Egyptian officials who say they are on the cusp of signing an IMF loan worth $4.8 billion.
Mr Dimian has proved to be an important component of Egypt’s finance ministry, surviving all five finance ministers since the beginning of the revolution in 2011.
As well as creating a Macro-Fiscal policy unit at the ministry of finance in 2005 (which has been a leading the writing of Egypt’s economic plan), Mr Dimian also represents the Egyptian side for the Egypt-EU economic dialogues and is coordinator for the EU-Egypt Neighborhood Policy Action.
He also serves as a board member of the Egyptian Competition Authority and the country’s National Telecommunication Regulatory Authority.
A second source, who was aware of the deputy minister’s departure, said a number of people have been nominated for the position including Maged Shawky, former head of the Cairo and Alexandria Stock Exchange, Amr El Kadi, head of risk management at private equity firm Citadel Capital, and Nidal Asr, assistant Sub-Governer at Egypt’s Central Bank.
In a new policy paper for the European Council on Foreign Relations – “Egypt, the IMF, and European Economic Assistance” – I argue that while structural reform is important to deal with Egypt’s deep rooted economic problems, it would be short sighted for the EU and key member states not to act now. Here’s a blog post on the paper too.
Part of the inspiration for this paper came from numerous meetings with EU diplomats who have, up till now, held back most of loans and grants to Egypt because of a lack of political stability and consensus.
However, the more I spoke to Egyptian players, the more I saw this as a Catch 22 situation.
Egypt needs cash to prevent instability in the face of unemployment and economic collapse, but it can’t get the cash without signing up to reforms that would themselves cause more short term instability.
Europe must commit some money to grassroots training now to avoid this Catch 22 destroying the consolidation of democracy in Egypt.
My key arguments are as follows: