Thursday 29 June, Egyptians woke to a more than 50 per cent rise in the price of gasoline and diesel.
It was the second hike in fuel prices in less than a year. Small wonder Egyptians felt appalled. The economic pain on account of floating the pound last November and subsequent economic reform measures was still raw.
Yet Egyptians bore the pain stoically. They had to; protest was out of the question. They realised that the excruciating economic pain of today was the direct outcome of the protest and unrest that constituted the ‘Arab Spring’ back in 2011. Tourism and investment had consequently decimated, and the economy went into a nosedive from which Egypt is still attempting to recover. Egyptians insist they are having none of that again.
The inflation to come
Last November, Egypt floated its currency. It was the first step in a reform programme backed by the International Monetary Fund, as a precondition for an IMF bailout loan of USD2 billion disbursed over three years. The pound depreciated sharply from 8.8 to the dollar to 18. Inflation rose to a record high. With food and medicine making up to 40 per cent of Egypt’s imports, the more-than-double exchange rate of the pound to the dollar brought on a huge rise in prices. A hike in fuel prices was the last thing Egyptians needed then, but hike they did and inflation rose to an annual 32.9 per cent in April 2017. In May 2017, inflation went down to 30.9 per cent and matters seemed to be looking up when the new price hike hit last week.
The price of 80 octane gasoline and diesel rose to EGP3.65 up from EGP2.35; that of 92 octane gasoline reached EGP5 instead of EGP 3.5, while the price of butane canisters doubled from EGP15 to EGP30.
Now Egyptians have to live through another painful spike of inflation. Is it any comfort that analysts predict inflation in the last two months of this year to be less than the same period last year when the pound was floated? For the moment, the rise in fuel prices will raise transport costs for all goods and another round of high inflation will follow. This is what matters.
Petroleum Minister Tarek al-Mulla declared that the recent price hikes were not the end of the road. “The prices do not yet cover the cost price of fuel,” he said on a TV talk show on the satellite channel Sada al-Balad. “For a fair price, a butane canister should sell for EGP115, and a litre of gasoline should sell at around EGP6.5.” Meaning that more price increases may be expected in the future if the subsidy on fuel is to be fully lifted.
Prime Minister Sherif Ismail declared that the recent price hike was inevitable and could not be delayed. He said fuel subsidies were straining government financing. “Had they remained unchanged,” he said, “the projection for next year subsidies would have been 150 billion pounds. This is a huge sum that neither the oil sector nor the State budget could sustain.”
Early in June, the government had raised pensions and more than doubled the amount of subsidised food that millions of ration card holders can purchase on a monthly basis. In late May, it announced a USD2.49 billion package of income tax discounts, bonuses for state employees, increased pension payments and cash subsidies for lower and middle income Egyptians to cope with the soaring prices. The package went into effect July 2017. But, according to economic analysts, the government’s social spending covers only 40 – 50 per cent of the recent price hikes.
President Abdel Fattah al-Sisi said the country has no choice but to undertake the tough economic reforms. He pleaded for Egyptians to bear the reforms necessary to spur economic recovery.
Subsidies deform the economy
No matter how pained consumers are, economists and businessmen are unanimous in their opinion that the fuel price hikes are a step in the right direction; many say it was long overdue.
Economic expert Yehia al-Zananiri, head of the garment sector in the chambers of commerce, told Watani that the price hike was not a direct rise in price but a cumulative one that piled up over the many years when the price was kept artificially suppressed. “Now,” he said, “it is being raised gradually until it reaches the actual cost of the fuel. Consumers must be made aware of the fact that price increases are inevitable. The media should shoulder this responsibility and learn to shed light on the positive aspects and projects in Egypt’s economy, not only negative news.”
Mr Zananiri said the rise in fuel prices stands to affect only a 10 per cent of costs in the garment industry, but other industries such as the food industry are likely to suffer much more.
Financier Fouad Shaker said the decision to phase out the fuel subsidy was a sound one; in fact, was long overdue. Without this decision, Dr Shaker said, it would be impossible to close the deficit gap in the budget or to pay Egypt’s debts. “We should reach the point,” he said, “where fuel is sold to consumers at its real price, the international price.”
Dr Shaker insisted that subsidies ‘deform’ Egypt’s economy. “There is a common, mistaken idea,” he said, “that subsidies are in the interest of the consumer. Nothing can be more erroneous. Subsidies ruin the economy and burden the consumer with a huge public debt which, sooner or later, must be paid. And it is the consumer who is bound to shoulder the payment.”
Not yet up to pre-Arab Spring prices
For his part, businessman and politician Hisham Auf believes that fuel prices should have indeed been raised but, he wrote on his FB page, the step should have been preceded with a bunch of liberal measures. These, he explained to Watani, include phasing out 25 per cent of government spending, full exit of the State and military from the national economy while maintaining only a supervisory role, reducing government spending on religious institutions, implementing a firm policy to rein in population explosion, working for the return of tourism to robust levels, attracting foreign investment, and promoting exports through a bunch of incentives. Such measures, Mr Auf said, would have the effect of creating a flourishing market that would work to raise incomes and reduce the value of the dollar to the pound, so Egyptians could withstand painful economic reforms.
Mr Auf disagrees with the opinion that the fuel price hikes are long overdue. Before the year of the Arab Spring uprising, 2011, he said, a litre of 90 octane gasoline sold at the equivalent of 33 cents. Today, 92 octane gasoline sells at the equivalent of 27.6 cents, meaning that it was more expensive during the Mubarak years, and that the current government has not yet raised it to that price. He blames the post-Arab Spring unrest and economic doldrums for the downturn and loss in value of the pound, saying that the government is attempting but has not yet succeeded, to reach the pre-Arab Spring Mubarak-era price levels and vibrant economy.
À la Egyptian
Egyptians, for all the pain, have taken in the price rises in their time-honoured sarcastic sense of humour. Social media almost choked with cartoons, videos, and quips which insinuated it would be an excellent deal to replace cars with donkey carts. But then, others quipped, the price of clover—the common food for donkeys—would spiral. Donkeys were depicted protesting that they were being taken advantage of by Egyptians; their meat was eaten when there was a shortage of beef, and they were made to replace cars when fuel became non-affordable. Cats sat on a nearby wall moaning that their turn to be killed for their meat might come soon, now that Egyptians have found other uses for donkeys.
Other jokes talked of going away for holidays before the rise in fuel prices, and being stranded there now that no one can afford to fill fuel tanks. Yet others depicted advertisements by banks that would give five-year loans for a fuel fill. “Go to the bank and fill your tank!” it said. One picture had a butane canister that needed a password to open, and a young man calling: “Mama, what’s the password? I need a cup of tea.” And there was Chef Sherbini on his famous TV show revealing the secrets of making home-made gasoline in your kitchen.
À la Copt
Copts coined their own brand of jokes to fit the occasion. Along the line of the litanies sung during Holy Mass, one ‘new litany’ posted on social media read: “We ask on behalf of our fathers, brothers and sisters who need 92 octane gasoline that the Lord may give them strength and comfort, and support them along their way, and forgive us our sins. Lord have mercy, Amen.” It was humorously defined as: New litany for fuel, 30.06.2017. To which a blogger replied: “Are the poor always left out, even in litanies? I demand the following addition: ‘And our brothers and sisters on remote paths, who use 80 octane gasoline, O Lord stretch your almighty helping hand to them’.”
5 July 2017