The politics of economy: what will the new president inherit?
An Egyptian casts his vote in presidential elections in Egypt REUTERS/Thaier Al-Sudani
By YASMINE SAMRA

CAIRO: “Former Islamist President Mohamed Morsi raised people’s expectations before being elected, and offered them nothing when he took office,” said Hisham Tawfik, chairman of Arabeya Online Brokerage as well as a board member of the Egyptian Exchange.

Tawfik added that “the Freedom and Justice Party, the political wing of Morsi’s Muslim Brotherhood, carried an extremely excellent program, but when their candidate was elected, they neglected it (put in the drawers) after reaching to power, or perhaps they were afraid to implement it.”

The next president of Egypt will inherit a country with a faltering economy; over 13 percent of the population is unemployed, and 50 percent live under the poverty line.

Highly favored to win, former Defense Minister Abdel Fatah al-Sisi is facing leftist challenger Hamdeen Sabbahi in presidential elections beginning Monday.

Sabbahi released a detailed economic plan as part of his campaign, whereas Sisi has relied on media interviews in the past three weeks to discuss his economic policy. Sisi netted 94.5 percent of the expatriate vote, which concluded last week.

“The dramatic decline in Egypt’s foreign reserves since 2011, the budget deficit, unemployment, soaring prices and the declining rates of economic growth and labor productivity are Egypt’s key problems,” Farag Abdel Fattah, an economics professor at Cairo University, told The Cairo Post.

“Egyptians chanted certain slogans during the January 25 Revolution, namely ‘bread, freedom, social justice and human dignity’ and this requires a kind of modest approach of socialism after the world suffered from the dramatic consequences of the financial crisis in 2008, which forced policy makers to reconsider capitalism and free market policies,” said economic expert Zohdi el-Shami.

“I hope Sisi will enable the Self-Regulatory Organizations (SROs) to lead development plans, since depending on ministers is a fatal mistake as bureaucracy wastes efficiencies,” Tawfik said, backing Sisi’s reluctance to delve into his economic platform. “If Sisi counts on the ‘rotten’ localities, ministries and state-employees, we will be lost.”

He also said Sabbahi is an “unrealistic” candidate.“Sabbahi is raising people’s prospects with much money, while the country is almost bankrupt,” Tawfik said. “Sabbahi’s advisors, belonging to the socialist model, are nothing… socialism is finished worldwide.”

Poverty

“Egypt failed to overcome chronic poverty through the subsidy system, which led to a major budget deficit, while the poverty rate soared to approximately 50 percent,” said Minister of Planning Ashraf el-Araby at a conference organized by the American University in Cairo May 17.

Poverty will be a major challenge to Egypt’s elected president, who is also expected to revive a limping economy plagued by a lack of financial resources from tourism and investments due to political unrest and militant insurgency.

“It is estimated that Egypt has lost 200 billion EGP ($28 billion) from corruption, and in my opinion this might be less than the real number. We will also propose new measures, including maximum and minimum wages, as well as fair pensions and progressive taxation to be used as tools to increase the general budget and encourage investment,” Sabbahi said in a Sky News interview.

In an interview with Al-Hayat TV channel May 17, Sabbahi also said he does not believe or trust Sisi’s ability  to end corruption in Egypt following the  Mubarak and Morsi regimes.

Sabbahi has said he wants to institute seven main rights for the citizen: Right to nutrition, work, health, education and culture, housing, acceptable wages, and social insurance.

Sabbahi said he intends to focus on small and medium enterprises; his program aims to implement 1 million new projects within a year and 5 million new projects within four years, mainly targeting women-run households and youth.

Sisi has pledged to combat unemployment through government-based projects such as providing youth with pick-up trucks and allowing them to work in transporting goods to and from markets, he said in a joint CBC and ONTV interview May 5 and 6, adding that youth could pay back the price of the trucks through several low installments.

Sisi also proposed a 1 trillion EGP development plan to restructure Egypt’s governorates and growing rural areas , during a Sunday interview on Al-Nahar TV channel. He said the plan could be implemented within two years if the funds are available.

In an interview with Khaled Salah, Lobna Asal and Wael el-Ebrashy, Sisi said he aims to multiply citizens’ average per capita income by doubling the GDP so that it hits 2.6 trillion EGP, adding that Egypt “needs two to three years to jump.”

Sisi has also called for rationing government as well as personal spending in the coming period.

“We need to get Egypt out of poverty. It would be absurd to allow our children to inherit this,” He added. “Some of the poor are eating rotten food… it is shameful for us to allow this to go on.”

At a meeting with leading media personalities on ONTV on May 4, Sisi hinted that he could implement tough austerity measures to revive Egypt’s ailing economy if elected.

Sisi’s platform is based on a gradual removal of subsidies, which he said would not be implemented before raising individual income.. He said he will install “parallel mechanisms” to control prices and help low-income people if the private sector is unable t to do it  alone

Unemployment

Unemployment rates reached 13.4 percent in the Q12014 according to the state-run statistics body CAPMAS.

Sisi’s proposed plan is based on restructuring the map of governorates and implementing infrastructure projects for development.

“We are living on 6 percent of Egypt’s territory, and the population suffers from significant uneven distribution… The Wadi Gedid governorate represents one-third of Egypt’s lands, yet only 150,000 citizens live there,” he said.

Sisi revealed his intentions to develop  metallurgical industries in order to shift from the export of raw minerals to the process of manufacturing minerals in Egypt and exporting them.

“This will achieve added value for the national economy and raise employment rates,” he said.

The plan will also utilize more of Egypt’s coasts to promote the fishing industry and Sisi said he would allocate specified areas in the coastal governorates to be used for aquaculture.

According to his platform, Sabbahi plans to promote development in Upper Egypt, and establish 2,000 new factories and companies in small towns within 4 years at a cost of between 500,000 EGP and 1 million EGP per project.

Sabbahi also aims to establish a development fund at the  Upper Egypt Bank, which would create 25,000 job opportunities. These projects in Upper Egypt will focus on the canned food industry, local products manufacturing, agriculture and fisheries.

Sabbahi’s platform also stated that he would give priority to exploration of deserts for mineral resources, aiming for the establishment of 400 mines and quarries to create 6,000 direct job opportunities. Loans between 50,000 and 100,000 EGP to be provided to investing companies in those projects.

Energy

“Egypt is privileged with nine hours of sunlight daily and it has the potential to be the main source of solar energy for the rest of the world,” Sisi said in a Sunday interview on Al-Nahar TV channel.

However, the popular candidate refused to delve into specific details concerning energy and development projects, citing “national security concerns” when pressed by his hosts.

Rolling power cuts in the summer have become ubiquitous since the January 2011 Revolution, caused by fuel shortages at power plants.

Addressing this energy crisis was a key policy challenge that many believe Morsi failed. The shortage helped inflame protests against his regime on June 30 before the military deposed him on July 3.

Subsequent petroleum aid pledged to Egypt from the Gulf states following Morsi’s ouster mitigated the shortages during the first period of the interim government. Outages in 2014, however, began early, which has raised concerns over serious shortages during peak usage periods in the summer months.

Despite opposition from Environmental Minister Laila Iskander, the cabinet on April 2 approved the use of coal in cement factories as a means to combat energy shortages.

More than two thirds of Egypt’s total subsidy bills are for fuel products, according to a 2012 study published by the Egyptian Center for Economic Studies, which also showed that the subsidies represent about 20 percent of the total state budget.

Sisi said he planned to fill the energy deficit and eliminate the 1,000-megawatt shortage in Egypt’s electricity system, which causes the frequent outages.

“Changing old lamps with new energy saving bulbs in Egyptian households would save 4,000-megawatts,” he said in an interview with a number of media personalities on May 3, adding that the saved energy could save millions of pounds that could be used for other subsidies in the state budget.

Sabbahi’s platform highlighted a number of procedures and solutions for Egypt’s persisting energy crisis, topped by an expansion in the solar energy system with the aim of establishing four major 250 megawatt solar plants. He also said he intends to reduce pressure on energy production by covering 6 percent of national energy demands with wind power that could reach 3,000 megawatt within 4 years.

In an interview aired on Mehwar channel, economic expert Zohdi el-Shami, a leading member of the Sabbahi campaign, said new policies are needed to achieve social justice and end unemployment. “These policies will approach socialism in a way,” he added.

Shami said Sabbahi’s platform entails immediate procedures that could improve the lives of needy families within four years if elected.

“Reducing spending and the budget deficit along with reconsidering the tax base and applying the progressive tax, real estate tax and tax on stock market profits would be on top of such procedures,” he added.

“For more than 30 years,  successive administrations have been focusing on growth rates and completely neglected development, but Sisi has a vision for development through building factories and establishing projects which will offer more jobs,” Abdel Fattah said.

Financing

Sisi has said he will depend on national saving to finance his plans, while Sabbahi said he will reduce spending, in addition to widening the tax base.

In an interview on Sky News Arabia channel, Sabbahi said, “Reviewing the general budget, through our program, could save up to $166 billion. By confronting corruption we can improve both management and the economy and provide an excellent source of money.”

Shami said Sabbahi will depend on reducing and rationing spending, combating corruption, restoring the cash smuggled abroad by Mubarak-era business tycoons and tax revenues.

He further noted that the 2013 Constitution states that the government should apply a progressive tax.

However, Abdel Fattah countered that “tax revenues are collected for public spending not for opening new factories.” He added that state budget reform requires a maximum level of rationing, and then the imposition of a surtax or  new tax could be considered.

“Development should be financed from national savings not foreign finance. This finance (from national savings) is not a tax or a donor but they will be partners in development,” added Abdel Fattah.

Sisi said he would depend on the national savings of Egyptians in and outside the country to finance his development plan.

He said he will depend on financial aid, especially low-interest loans while grants will represent a small proportion of such aid, according to Abdel Fattah, who reiterated that this aid will be directed to new projects and not generate revenue to fill the budget deficit.

In an effort to curb the growing budget deficit, higher prices and inflation rates, the military-backed government approved early this month a five percent tax hike on high-income Egyptians ahead of the presidential elections.

“The five percent temporary tax will be applied on those whose incomes exceed one million EGP ($140,000) annually,” Minister of Finance Hany Kadry said in a May 11 statement.

The tax will last for three years and the first payment will be due starting January 2015.

Egypt’s budget deficit is expected to range between 340 billion EGP-350 billion EGP during fiscal year 2014/15, which amounts to 14-14.5 percent of the country’s GDP, if economic reform procedures are not adopted, Kadry said during an April Cabinet meeting. The country registered a budget deficit over 240 billion EGP during fiscal year 2012/2013, ending on June 30 and coinciding with Morsi’s outer.

Tourism

The tourism industry has been in a constant decline since the overthrow of Mubarak in 2011, despite ongoing campaigns to convince foreigners that the country is safe, especially after a militant insurgency and bombings hit the tranquil Red Sea resorts in the volatile Sinai Peninsula.

Egypt depends on tourism for around 11.3 percent of its GDP and the sector provides 14.4 percent of hard currency, according to ministry data.

The number of tourists visiting Egypt dropped significantly by 17.9 percent in 2013, to total 9.5 million tourists, compared to 11.5 million tourists in 2012, the Central Agency for Public Mobilization and Statistics (CAPMAS) revealed in its annual bulletin on tourism statistics.

In 2010, more than 14.73 million tourists visited Egypt, compared to 9.5 million tourists last year, reflecting a 35.8 percent decline, according to CAPMAS.

The interim government said it aims to attract 12 million tourists in 2014, targeting $9 billion in tourist revenues by the end of the year

“The Egyptian Travel Agents Associations is backing the former Minister of Defense given the outline of his program, while his opponent is just launching slogans without clear speech about financial resources, “Adel Zaki, head of the Foreign Tourism Committee at the travel agents association, told The Cairo Post Tuesday.

Sabbahi’s platform shed light on several tourism challenges to resolve, notably the Security situation, transportation means and infrastructure, general health safety, improving public services and ensuring tourists’ safety. His platform features ideas promoting new tourism locations on the North Coast and developing desert, religious and cultural tourism.

Stock market

Despite its importance as a key means of financing both public and private businesses, the platforms and statements of both presidential candidates have not addresses the developmental role of Egypt’s stock market in the coming period.

This disregard irritated Egyptian Exchange (EGX) investors who have complained of the same attitude towards the stock market during the 2012 presidential campaigns.

Sabbahi’s electoral platform entailed the imposition of  taxes on stock market profits amid several procedures to achieve social justice, while Sisi  did not announce a formal electoral platform, and said nothing about the stock market.

“The candidates neglect of utilizing the stock market is deemed a reconfirmation of the false idea that capital markets limited to the wealthy and white-collar who do not need any kind of support. The Egyptian Exchange, its investors and employees have suffered a lot  from such an impression,” Ihab Saeed, head of technical analysis at Osool ESB Securities, told The Cairo Post.

Reiterating the importance of the stock market for the national economy, the analyst said the EGX and investment levels have been  suffering from hostility from the intelligentsia who consider stock-trading gambling, especially after the ouster Mubarak in 2011, as his regime appointed a government of businesspeople, and some ministers were proven to be involved in several crimes.

“There is a big difference between those (businesspeople of the Mubarak era) and EGX investors, especially small investors who represent 80 percent of total investments in EGX,” added Saeed.

Recommend to friends

Leave a comment