A large proportion of Egyptians could well find the real cost of living impossible to bear were it not for government aid subsidies. Currently the government is subsidising basic commodities such as bread and gasoline so they can be offered on the market at affordable prices.
That may change, however. There has recently been talk of phasing out the subsidies, or what the government prefers to term “channelling subsidies to those who need them most”. Ministers critical of the present system argue that there is no point in offering subsidised commodities to those who can afford to pay market prices.
It is no secret that the subsidy bill has risen greatly owing to the rise in price of world commodity markets coupled with the rise in demand as a result of Egypt’s growing population. It is estimated that the subsidy today costs Egypt some LE56 billion.
Those who need it
Prime Minister Ahmed Nazif says the Cabinet is delaying talks about the price of bread to the last phase of its policy of channelling subsidies to the most needy. He recently said the subsidy bill is expected to rise to some LE70 billion.
Mr Nazif said one 50-kg pack of flour cost the State budget LE260, while it was sold at the subsided price of less than LE20 and then resold on the black market for LE160, if not LE180. “Our goal is not to reduce the subsidy sum, but we aim at reinvesting these sums for the benefit of those who need it,” Mr Nazif said. He said new policies could be in place by the end of the fiscal year in 2008.
Mr Nazif suggested beginning the experiment in Suez, which has only half the population of other governorates. The government insists the monetary subsidy is still under study and that nothing has yet been decided.
Egyptian economists have demanded that the subsidies in kind and in monetary terms be blended. They highlight the importance of solving poverty issues and the need for government intervention to limit rising prices.
Abdel-Fattah al-Gebali, head of the economic research unit at al-Ahram Centre for Strategic Studies, said the subsidies had increased from LE4.9 billion in fiscal 2000/2001 to LE56 billion in 2006/2007. In addition, Mr Gebali added, the subsidy on food rations had increased from LE3.6 billion to LE9 billion, which is also expected to further increase to LE16 billion.
Mr Gebali said the removal of subsidies on transport, dairy products, health insurance, electricity and oil products would have severe repercussions. Three-fourths of poor people receive subsidised supplies through ration cards, while 40 per cent of the richest people in society receive a 66 per cent subsidy on oil products. He concludes that monetary subsidy suit some goods but not others.
Red line
Another point of view is raised by Gouda Abdel-Khaleq, professor of economics at Cairo University, who says the government has two items on the agenda when it tackles the issue of subsidies. The first is that subsidies have become a burden on the State budget, while the second is that subsidies do not reach those who deserve them. A policy to redirect subsidies could cost more, which is contrary to the government’s strategy to reduce the budget.
Dr Abdel-Khaleq said the government was currently subsidising the rich more than the poor and should reconsider its policy. He was referring to the government’s privatisation policy which, he said, served foreign capital. However he warned against cancelling the subsidy, which would lead to an increase in prices and could even spawn bread riots such as those that broke out following a similar move by then-president Anwar al-Sadat in January 1977.
Throughout the 14th round of the conference for agriculturists and economists, held over two days at the Egyptian society for agriculture economy, experts said the current system of subsidy in kind was the most suitable for the current period. They cited a shortage of data that could determine the poverty line and accordingly determine the average family income.
Economists said the bread subsidy was a red line which should not be crossed. The participants warned the government against depending on so-called ‘poverty certificates’ which could be easily obtained by richer people, while the poor sometimes failed to prove their need for subsidies.
Repercussions
Ali Hassan, a 65-year-old workman, told Watani that he preferred to see stable prices for such essentials as bread and petrol. He wants subsidies in kind rather than monetary subsidies which he fears will not be enough for the poor who are already suffering from rising prices. In general his view is typical. Mahmoud Ibrahim, a 57-year-old farmer, agreed that subsidies in kind should continue. “If the government gave people money it might be enough for a while, but people won’t have food for the rest of the month,” he said. Housewife Mervat Muhammad, 53, and Moheb Bishara, 32, an employee at the Nag-Hammadi electricity company, pointed out that monetary subsidy could be unfair. In their opinion, if the current subsidy were changed revolution and protest would be inevitable.
Muhammad Abdel-Wareth, 35, who works as a tour-guide, says that even the current subsidies are not enough, so how could financial subsidies work?
However Nagah Boulos, a 33-year-old accountant, disagreed with the rest, believing that the current subsidy in kind was not directed at the people who needed it. The clear evidence, he added, was that the advantages of oil subsidies went to factory owners and businessmen, and accordingly the poor hardly benefited. But obviously Mr Boulos could not see how such a subsidy might contribute to decreasing production costs and accordingly the market cost of a product.