Muslim Brotherhood Remarks on Government’s Economic Plan
|Friday, April 21,2006 00:00|
The government’s statement to the People’s Assembly in Jan. 30, 2006 is the second statement to be delivered by Dr. Ahmad Nazif who took over the government since 18 months. Nazif’s taking over the Cabinet in July 2004 is considered a new progressive step towards the process of the slow and hesitated economic conversion, which is led by the state since 1991. By adopting this process, the state aims at withdrawing from the process of the direct production, depending on the private sector, applying the market economy, achieving integration with the world economy, and participating in the actions of the international trade, as it is the sole way to achieve the required growth of the Egyptian economy.
Some Remarks on the Economic Aspect of the Government’s Statement
The government’s statement to the People’s Assembly in
The government’s statement was divided into two main parts:
Firstly: Reviewing the achievements of the government during the previous period. This part is classified according to the ten programs that were mentioned in the government’s statement in Dec. 2004. They are as follows:
First program: Investment for employment
Second program: Subsidies, prices and market discipline
Third program: Developing the basic public services for the citizens
Fourth program: Developing the economic performance
Fifth program: Developing the education and the scientific research
Sixth program: Developing the health services
Seventh program: Developing the state administrative agency
Eighth program: Protecting the natural resources
Ninth program: Developing the political and legislative environments
Tenth program: Building the information society
Secondly: Reviewing the government’s program during the coming period, according to seven axes:
First axis: Providing job opportunities and facing unemployment
Second axis: Activating the investments
Third axis: Caring for the limited-income groups
Fourth axis: Improving the provided services
Fifth axis: The legislative and institutional reforms
Sixth axis: Deepening democracy
Seventh axis: The foreign affairs
By comparing these seven axes to the ten programs that were mentioned in the statement of 2004, we will notice that some programs were integrated, such as: integrating the program of developing the basic public services, the program of developing the education and the program of developing the health services in one axis; the axis of improving the provided services. Also, the program of investment for employment was divided into two axes: the axis of facing unemployment and the axis of activating the investments.
This paper will deal with the economic aspect, which occupied the major part of the government’s statement, through discussing its four axes:
1. Facing unemployment
2. Activating the investments
3. Caring for the limited-income groups
4. Improving the provided services
Firstly: Facing unemployment
The government clarified in its statement that it would face the unemployment; this is to comply with the president’s electoral program that aims at creating about 4,5 million new job opportunities in a six-year period through increasing the investments. The statement included a detailed review of the job opportunities that were provided since the government took over before 18 months, in addition to the job opportunities that the government plans to provide this year.
We will discuss the following axis that deals with activating the investments, as it is the natural solution to the problem of unemployment, in detail. But, here we will deal only with two important issues related to the subject of facing unemployment: 1. The reality of the problem of unemployment in
1. The reality of the problem of unemployment in Egypt
In spite of the great attention that the government’s statement paid to the problem of unemployment in
It is worth mentioning that the Prime Minister mentioned, according to Al-Ahram Newspaper in
In fact, there are many indications prove that the number of the unemployment, which the government claims, is incorrect. We will sum up these indications:
a. When the government announced during the time of the ex-Prime Minister for 170,000 governmental jobs in 2001, 7 million citizens paid the due fees to get the job application. 4,4 millions applied for the offered jobs in spite of their low salaries. The government tried to cover the indications of these numbers by saying that 10% of the applicants did not apply to the jobs’ conditions, as they did not get an educational degree and that 6.5% did not apply to the Jobs’ conditions as they graduated before 1984 or in 2001. Anyway, they suffered from unemployment and, consequently, the numbers had many indications.
b. In defining the number of the unemployed persons, the government depended on incorrect data about the Egyptian work force. The official number that was stated by the government about the work force in the mid of 2004 reached 20,7 millions; whereas the World Bank announced in its report on the development’s indications in the world in 2005 that the number of the Egyptian work force reached 26,7 millions, according to the statistics of 2003. By adding these 6 millions, which represent the difference between the statistics of the government and that of the World Bank, to the official number of the unemployed persons in
Actually, what Dr. Nazif announced concerning the need to provide from 500,000 to 600,000 job opportunities to absorb the annual volume of newcomers into the labor market contradicts to what Dr. Atef Ebaid, the Ex-Prime Minister, announced of the need to provide 800,000 job opportunities to achieve the same aim at his time. It is known that the numbers should increase by years, according to the increase of the population; it is illogical to think that these numbers will regress anyhow.
2. The small projects
The government’s statement clarified that the government succeeded in providing 257,000 job opportunities during the past 18 months through small and very small projects, which reached a total of 148,000 projects, funded by 1178 million pounds from the Social Fund for Development. This is in addition to 184,000 job opportunities were created through the projects of the Productive Families and the Local Development Fund, as well as those provided by Nasser Social Bank.
Accordingly, the government will provide 150,000 new job opportunities annually through allocating 1.5 billion pounds annually for the Social Fund, in addition to 130,000 job opportunities on an annual basis through other small lending authorities.
In his electoral program, President Mubarak stated that 3 billion pounds will be provided to create 600,000 job opportunities in a six-year period in the field of the small projects, by 100,000 job opportunities annually and to the amount of 5,000 pounds for every job opportunity.
In fact, depending on the small projects to provide job opportunities for the Egyptian youths is a tolerable idea in the light of the weak rates of the local savings and the high investment costs to create a job opportunity, as it reached 250,000 for each job opportunity.
However, the figures that the government state concerning these projects are controversial:
a. It is not possible to provide serious and stable job opportunity costing about 5,000 pounds. Experiences indicate that this matter can exceptionally be achieved in the very small projects. Thus, the claim of providing tens of thousands of job opportunities by this small costing is unacceptable.
b. If the ambitious program of President Mubarak hopes to provide 100,000 job opportunities annually through the small projects, it is unacceptable that the government claims that it provided more than 330,000 job opportunities during the past 18 months and that it will provide 280,000 job opportunities during the present year through the small projects. Such claims create no confidence in the figures and the promises of the government.
c. Reposing hopes in the small projects to face unemployment neglects the passive experience of these projects in Egypt, as they still generally lack the support of the government for their marketing abilities to have the chance to develop and increase their production. Also, they lack the support concerning the technical and administrative aspects and concerning joining them to the large projects of the high commercial abilities.
Secondly: Activating the investments
The government’s statement placed the main burden in providing job opportunities on the aspect of activating the investments. The statement clarified that the government succeeded in increasing the implemented investments in FY 2004/2005 to 92 billion pounds, compared to 80 billions in the previous year. As a result, Egypt’s economic growth rate increased from 4.1% in FY 2003/2004, to 5.1% in FY 2004/2005. The statement asserted that the government would succeed in increasing the domestic and foreign investments in the present year to reach a 6% growth rate by the end of this year. However, the statement did not mention the value of the desired increase.
Hereinafter, we will deal with some remarks on the government’s view on activating the investments with their various types, then we will discuss the exportation, as the basic element that the government depends on to market the production of these investments. Thus, we will handle the following items:
· The investments of the private sector
· The foreign investments
· The public business sector and privatization
· The governmental investments
1. The investments of the private sector
The government’s statement did not include the volume of the investments of the domestic private sector that was implemented since the government’s taking over, or the volume of the investments that it intends to attract during this year. It clarified only that the implemented investments (of the public sector, the domestic private sector and the foreign private sector) rose to 92.5 billion pounds in FY 2004/2005, compared to 79.6 billion pounds in the previous year; which is a 16.2% increase. The statement asserted that the government that succeeded to achieve that in the previous year would succeed in attracting more domestic and foreign investments.
The government recorded in its statement that because of its efforts in providing the appropriate economic environment that attracts investments, the number of established and expanded companies increased within 18 months to reach 9071, with total issued capital of 46 billion pounds, compared to only 3374 companies in the previous year.
Because of the importance of the role that the Egyptian private sector plays in promoting the economy and solving the problems of stagnancy and unemployment, we have to be keen to learn about the reality of this sector and the accuracy of the declared data. In this framework, we observe the following:
a. In spite of the great interest of the Prime Minister to assert the major boom that included the private investments in Egypt, the government’s statement did not include definite figures concerning this matter, except what it mentioned that the number of the established and expanded companies increased within 18 months to reach 9071, with total issued capital of 46 billion pounds. However, we cannot get a certain indication from these figures, as it is well-known that the total issued capital does not necessarily represent the implemented investments of these companies; rather it represents the contribution of the subscribers, and in most cases it not to be paid wholly when establishing the companies.
b. The government’s statement included the increase of the volume of the implemented investments in FY 2004/2005 to 92.5 billion pounds, compared to 79.6 billions in the previous year. Since the volume of these investments represents the investments of the public sector, the domestic private sector and the foreign private sector, we referred to the report of the Central Bank in December 2005 that clarified that 47 billion pounds of this number belong to the domestic and the foreign private sector together, compared to 37 billion pounds in the previous year. The same report indicated that the foreign investments increased in FY 2004/20045 by 2 billion dollars. This means that the increase in the investments of the domestic and foreign private sector is attributed completely to the foreign investments and that the domestic investments continued with no increase. This might be the reason that the government’s statement was vague in dealing with this point.
c. The government’s statement talked about the flourishing of the stock exchange and its effect in making a remarkable boom in the Egyptian economy, as the stock exchange is the mirror that reflects the true image of the national economy. However, according to our knowledge and what the experts of the stock exchange assert, the flourishing of the stock exchange is nearer to be a swelling than a real growth, and the successive increases in the prices of the stocks of the Egyptian stock exchange are not accompanied by a real growth in the performance of the companies and the real financial positions of these companies are not provided. Thus, this makes the unjustified increase in the prices like the bubble that grows and then explodes, affecting negatively the small investors in the stock exchange after the escape of the professionals and the foreign investors, like what happened in 1990s.
d. The decisive index in the reality of the flourishing of the private investments in Egypt is the state of credit in the Egyptian banks. It is well-known that establishing factories and companies requires, in addition to the contributions of the owners of these installations, a banking finance suits the volume of the shared capital. For example, the electoral program of President Mubarak included establishing 1000 factories in a six-year period by investments that reach 17 billion pounds annually, of which 8.5 billions will be provided by the banking sector. If we reviewed the statistics of the credit in the Egyptian banks, we would find that the rate of the credit growth, which is offered to the private sector annually, does not exceed 4%. If we took into consideration the interests that to be added to the stumbled debts and the increase of the prices of exchange concerning the debts by the foreign currency, we would come to know that there is a state resembles freezing in offering credits to the private sector.
It is a paradox that the deposits grow in the banks with rates range from 12% to 13% annually; thus, this matter causes a problem for the banks in employing these increasing deposits. As a result, they have no other chance but to using them in buying governmental treasury bills and bonds in spite of their low interests.
As for the state of the private investments that were financed by the banks during the previous years when the rate of the credit growth which was offered to the private sector reached 27% annually in the mid of 1990s (disregarding the tolerable rate which ranges from 14% to 17%), the Minister of Industry told Al-Ahram Newspaper in Nov. 10, 2004, "In Egypt, we have a great number of the stumbled factories in every industrial area such as in 6th October city, in 10th Ramadan city, in Burg Al-Arab and in the Upper Egypt. I went to all these places and found a great number of the factories closed because of the financial stumble. The problem that faces us that we have assets, machines and equipments that are not working, in addition to buildings with no workers. On the other hand, we have thousands of youths who need jobs, and the funds of the banks are suspended in these broken projects.
2. The foreign investments
The government focused in its statement on increasing the domestic and foreign investments, as it is the effective means to create new job opportunities. In this framework, the Prime Minister keeps to assert that the greatest challenge that faces the Egyptian economy at this time, according to what he clarified before Davos Conference, is its ability to attract foreign investments to the local market, and this is the goal that the government will try to achieve in the future.
The government clarified in its statement that it managed to attract total foreign direct investments in FY 2004/2005 – including the petroleum sector – by 3.9 billion dollars. While in Q1 of the current year, it came to be 1.9 billion dollars; which makes a total of 5.8 billion dollars in 15 months.
Firstly, in order to realize the volume of the foreign investments that the government looks for, we have to refer to the concerned person, i.e. the Minister of Investment, who said, "The growth rate should rise to reach from 6.5% to 7%. In order to reach this rate, the investments should be 27% of the gross domestic product. Up to the present moment, we achieved investments by 18% of the gross domestic product; this means that we have a deficit of about 10% (about 9 billion dollars). Thus, it should be repaired through the foreign investments or finance."
As long as president Mubarak fears borrowing from the foreign countries – and we agree with him, there is no other solution but the foreign investments. We agree that the foreign investments may play an effective role in flourishing the Egyptian economy, especially while the deficit of the domestic savings. Also, they may positively contribute in transferring the developed technology to develop our productive capacity. However, we observe the following:
a. Out of transparency, the Prime Minister had to mention that the 3.9 billion dollars that he mentioned in his statement as total foreign direct investments include - according to what the Minister of Investment mentioned before the symposium of Al-Ahram Regional Institution – 2.6 billion dollars as foreign investments in the petroleum sector. It is well-known that the investments in the petroleum sector have a special case; as the petroleum companies import what correspond to these investments of the machines and equipments, then the government compensates them by the discovered petroleum. Thus, it has no real role in providing job opportunities for the Egyptians; moreover, the foreign companies implement these investments for their own benefit to control the sources of energy, and they have nothing to with the efforts of the government towards activating the investment process.
b. Since the Prime Minister appreciated that the income of the process of privatization during 15 months reached 16.5 billion dollars, it is worth mentioning that the Minister of Investment mentioned that 2/3 of the income of the process of privatization were through foreign investors, especially Suez Cement Company and Misr International Bank. In all cases, these foreign investments do not provide new productive capability or new job opportunities; rather, in some cases they dismiss many employees.
c. We have to record here what the Prime Minister mentioned during his meeting with US Today Magazine, during his visit to the United States. When he was asked about the fields that the foreign investments choose, he answered, "Most of these investments are in the fields of tourism and petroleum."
d. According to the United Nations Conference on Trade and Development (UNCTAD), the volume of the direct foreign investments in Egypt - since it opened its doors for these investments in the 1970s to the end of 2003 – reached 21 billion dollars. Thus, this does not correspond to the expectations of the Minister of Investment to achieve 9 billion dollars annually through the foreign investments, especially when we know that – according to the UNCTAD – the place of Egypt, the leading African and Arab country, deteriorated in 2003 to occupy the 16th place among the African countries and the 11th place among the Arab countries concerning attracting the foreign investments. Undoubtedly, the obstacles that hinder the investments play a great role in this deterioration, in addition to the Western political plans that aim at weakening the pivotal role that Egypt plays in the Arab and Islamic world, and in the Third World in general. Thus, we should not set our hopes on a mirage that will not come true except by neglecting this role more and more.
e. It is well-known that the petroleum Arab countries began to suffer from withdrawing the surplus funds because of the increase in the petroleum prices, and the people of these countries face many troubles when traveling to the Western countries, especially after the events of 11th Sep. in the United States. There is no doubt that this situation represents a good chance for the Egyptian government to attract the Arab investments. Because of the difference between the nature of these investments and the investments of the developed countries that we seek to attract concerning the motives, roles and results, we see that the government should separate between the data and the statistics of these two types of the investments and give more opportunities for the Arab investments.
3. The public business sector and privatization
The government stopped talking about the public sector, which is considered one of the basic components of the Egyptian economy and which holds a part of the national investments, and confined its talk to its efforts towards changing this sector into private companies. The government used a term other than "privatization", which is "mobilizing state’s non-financial assets". The government’s statement clarified that the Mobility Program of State’s Non-Financial Assets witnessed a considerable flourish, which made the amount of 16.5 billion pounds in 15 months. Also, it asserted that the government will activate this program in the present year through offering 45 public business sector companies and joint companies, as well as issuing additional petroleum companies, which secure the strategic level of power resources reserves.
Consequently, talking about any expansions in the investments of the public sector is useless, in spite of the indications that assert that we still need more time to depend on the private sector in providing the sufficient productive capabilities and new job opportunities. However, we have two important remarks:
4. The governmental investments
The government’s statement did not clarify the volume of the governmental investments that were implemented during the time of the government of Dr. Nazif, or that the government plans to implement during the present year. This indicates the attitude of the government towards this kind of investments, especially when the statement included the intention of the government to encourage the private sector to participate in executing and managing infrastructure and service projects, in a way that helps in reducing the burden of the state budget.
It is well-known that the items of expenditure in the state budget increase annually, as a result of either expanding in expenditures or, at least, the annual inflation. This exactly what happened in the budget of 2005/2006, except one item that witnessed a decrease in the dedicated funds in comparison with the funds of the previous year; namely the item of the governmental investments. These funds decreased to be 17.4 billion pounds, compared to 20.4 billions in the previous year.
The indication is quite clear; it seems that in spite of our dire need as developing country for more governmental investments in the field of education, health and infrastructure, the government does not place these needs in its priorities. It is useful here to compare this situation with what the Ex-Minister of Finance, Medhat Hasanain, said before the Shura Counsel when he defended increasing the funds of the governmental investments’ item to 20.4 billion pounds in 2004/2005, "In order to decrease the governmental investments, we should have a private sector that is able to establish utilities and facilities." This is in addition to the need for such investments to absorb some seekers of the job opportunities.
5. The exportation
The government’s statement mentioned that the government succeeded in increasing exports by 23% during the previous year. In FY 2004/2005, despite of the increase in the trade balance’s deficit by more than 2.6 billion dollars, balance of payments recorded a surplus of 4.5 billion dollars. Also, the statement clarified that the government continues its efforts to deepen the economic cooperation with the international economic blocks through activating free trade agreements, which increase the integration of the Egyptian economy with the world economic system. In addition, it seeks to open new markets for the industrial, agricultural and service products in order to increase the exports by 30% annually. It aims at increasing the exporting capacity of the petroleum sector up to 8 billion dollars, the agricultural sector up to 5 billion dollars, and the communication sector up to 3 billion dollars. Also, it plans to increase the number of tourists by around 1 million annually.
We agree with opening new markets for the Egyptian products, because of the weakness of the local market and the purchasing power of the Egyptian society. However, we have some remarks:
a. Transparency necessitates that as long as we mentioned that the exports increased in the previous year by 23%, we should mention that the imports increased in the same year by 33%, the trade balance’s deficit became 10.4 billion dollars according to the report of the Central Bank, and 40% of our exports were in the petroleum sector that made use of the increase in the petroleum prices and had nothing to do with the policies or the efforts of the government.
b. The statement asserts that the government seeks to increase our agricultural, industrial and service exports by 30%. We have no objection if the government wants to consider tourism as one of the exports, as it represents a service activity that affects in the balance of payment; however, the government should separate between the data and the expectations of tourism and that of the agricultural and industrial exports. Actually, the income of the tourism sector depends on the monuments that we inherited from our grandfathers, but the agricultural and industrial exports represent a real index for our productive capabilities. We agree with what Dr. Yusuf Butrus Ghali said before 10 years, "The thing that can cause a rise in the standard of living is the technological modernization in the commodities sector; while in the sector of tourism, hotels are existing and available since 100 years. Thus, the technological modernization in the tourism sector did not witness a great development."
Thirdly: Caring for the limited-income groups
The government regards protecting the limited-income groups, and creating work opportunities for those in need as essential duties it has to carry out. The government illustrated what it has achieved in the last period as well as what shall be achieved during the current year through the following items:
1. Raising the income of the government employees.
2. Raising the social security pension.
3. Restructuring the subsidies’ system.
4. Putting an end to antitrust and enactment of competition.
1- Raising the income of the government employees and pensioners
The government’s statement declared the protection of the limited-income groups through raising the salaries and wages of the government employees by 75% for those of higher income, and 100% for those of lower income in the course of six years. It also guaranteed that a different cadre will be formulated to cover the specialized professions such as teachers, doctors, and engineers. This will go hand in hand with raising the pensions, and expanding the coverage of the pension system to include the informal sector.
As for the achievements of the government in the previous period, the statement illustrated that the employees in the government administrative body were granted a special raise of 20% (30 Egyptian pounds at least) which makes the increase in the income of at least two million employees above 30%. It also mentioned that there is another raise that occurred to the salaries of most of the employees due to applying the new Tax Law that allows an eligibility of tax exemption and decreases the amount of tax.
We believe that the raise that occurred to the salaries of the government employees or even those promised by the government within the coming years is but an attempt to patch a ragged piece of garment that makes it even more tattered. This proposed raise will be swallowed by the rising prices to guarantee the survival of the low standards of living these people suffer from.
Researcher Ahmad An-Naggar gives an example: a general manager in the Social Affairs Ministry started his career as a fresh graduate in 1977 with a salary of 28.5 pounds, which could buy 28.5 kg of fresh meat. Throughout his career he was exceptional, and he rose to become a general manager. His basic salary in 2005 was around 433 pounds. His overall salary was around 540 pounds which could buy only 18 kg of fresh meat. That means that the purchasing power of his salary deteriorated through his working years in spite of the expansion of both his experience and his familial responsibilities. Therefore, his family’s standard of living dramatically deteriorated instead of getting better. This is but an example of the ridiculous governmental salaries from which all people suffer, except for some classes in the judicial system, the police force, the army officers, and the university staff with some differences among them.
Egypt really needs a new salary system that is capable of accomplishing the goal of raising the product quality and the quantity of the Egyptian production, and consequently, the competition level in the Egyptian economy. This should take place through the following techniques:
a- The payment system should be based on the criteria of effort and creation.
b- The payment system should be based on the assumption that the base payment is the main source of income for the employees. Therefore, it should afford a reasonable standard of living in order to avoid the pressures that lead to corruption and low quality production.
2- Raising the social security pension
The statement declared that the number of households receiving social security pension came up to 744 thousand, with a total value of 500 million pounds, and that the government endorsed the increase of the number of beneficiary households of social security pension to 1 million, and the disbursed amount to reach 1.1 billion pounds. This amount covers disbursing 20 pounds per student in pre-university education, with a maximum of 100 pounds per household. It also illustrated that more than 59 thousand households benefited from these monthly allowances, and that 125 thousand households benefited from the children’s pensions. As for the coming year, the statement declared that the number of beneficiary households of social security pension will go up from 650 thousand to 1 million.
Caring for the social security pension shall not come from such a limited shape that does not exceed one billion pounds, while at the same time the governmental social expenses exceeded 100 billion pounds. It, however, comes from clear indications of a blurred responsibility towards the pension system since the government plans at the present time to escape the burdens of the subsidies. This whole issue has a history: in 1994 when the subsidies started to decrease sharply, the government plainly stated to the Monetary Fund that the year 1995 would be the last year the Egyptian budget would carry the yoke of subsidies. Instead, there would be a social security pension system that was parallel with the treasury. In other words, the cash allowances would take the place of commodities subsidizations.
This intended program was not completely carried out at that time as the government disagreed with the treasury about the currency evaluation. A long time passed until the government of Dr. Nazif took over. All evidence points out that this government has an impression towards the burden of subsidies, and waits for the suitable opportunity to abort it. This impression is strongly related to the social security pension we are dealing with now, which might be clear in the interview between the Prime Minister and the journalists of Al-Wafd in May 12, 2005. He stated that he was studying a project for giving the subsidy to those who were eligible, through a monthly pension for each child (who is schooling) that does not exceed 20 pounds provided that he or she continues his education. It is also not an unrestricted pension, but restricted to those who are eligible for the subsidy with a maximum number of five persons. It is crystal clear that this silly project represents an ideal solution for the government to escape the burden of the subsidies that restrain its budget- even if this was on the account of the limited-income groups.
One of the indications of the silliness of this project is the inadequate sum of money provided for each family and that for each student (20 pounds for the student and 50 for the family with a maximum rate of 100 pounds). This does not correspond with the burdens of life in Egyptian society even if we applied this on the lowest standard of living.
We also have to draw an analogy between the number of those who benefit from such a project (650 thousand families, planned to reach 1 million) and the number of poor households in Egypt. The Egyptian government estimates their number to be 20% of the Egyptian community, while the international funding institutions believe they are around 40%. Moreover, it is ironic to mention that the government stated that it plans to raise the number to 1 million households, while Dr. Ahmad Nazif stated in a program called "Halit Hiwar" that was recorded in Al-Ahram Newspaper on July 7, 2005 that it had already been carried out. He stated that the money devoted to the social security pension increased from 600 million pounds to 1 billion, and that the households who benefited from that reached 1 million. What is even more ironic is what was declared by the government of Dr. Atef Ebaid in 2001 (five years ago) when he stated that he would expand the base of the households benefiting from the social security pension to include another 400 thousand in addition to the existing 600 thousand, so that the number of households shall reach 1 million. Afterwards, Atef Ebaid in the next government agenda of January 2002 proclaimed that 25 thousand persons shall be added in a monthly manner to this social security pension. After all these years, we find out that the government is working at raising the number from 650 thousand to 1 million!
3. Restructuring the subsidies’ system
Concerning the achievements of the previous year, the government’s statement proclaimed that the government continued its commitment to provide basic commodities, particularly bread, sugar, oil, rice, and others with reasonable prices for limited-income groups. Moreover, the government continued in developing 98% of the local bakeries. Concurrently, it enforced strict control over flour quota allocated for producing this kind of bread to ensure proper and relevant usage.
As for the coming stage, the government stated that it has started restructuring the subsidies’ system, to assure the appropriate coverage, linking it with the human development indicators. Thus, a new Ministry for Social Solidarity was established. The ministry will identify the eligible households for subsidy; and secure their needs of basic commodities and services. This will result in pushing these households to a higher income, and better living standards, which will drive their ability to produce and earn their living.
Forming an accurate opinion about restructuring the subsidies’ system requires a reference to the early nineties when the government subsidized many commodities. This had a negative impact on the general budget generating a deficit rate of more than 24%, a situation that could no longer be approved. Hand in hand with the economic reformation of 1991, the government started to decrease the commodities which were being subsidized to lessen the expenses. That led to a sharp rise in prices. However, at the same time, it led to decreasing the deficit to 1.5% of the national income in 1994/1995. There were some negotiations held with the Monetary Fund at that time to cancel the subsidies on commodities by the middle of the nineties in exchange for granting allowances for some categories. These negotiations, however, were not completed; President Mubarak justified decreasing the subsidies in Al-Ahram Newspaper on Oct. 30, 1995, "If we go on the same subsidies rate, it shall ingurgitate all the country resources so that we can never spend money on health, education, or housing. How would we live?" The President added, "We reduced the subsidies rate so as to be able to spend money on the citizens."
The limited subsidies’ system went on as it was until the beginning of 2003 when the price of the Egyptian pound declined before the other currencies in order to attract more foreign investment and to encourage exporting. This also led to a high rise in the prices of imports. Consequently, the government had to add more subsidized commodities on the ration card as a kind of limited help. On the other hand, the government stopped adding more infants to these ration cards since 1989.
Nevertheless, the enormous inflation of the value of the subsidized commodities occurred in a manner that surprised the government. Many years ago, the government had been partially subsidizing the petroleum products because Egypt is an oil productive country. Twelve years ago, the value of the governmental subsidization on the petroleum products did not exceed 700 million pounds. The regular expansion in the usage of oil as a power resource and the sharp rise in the oil prices during the last period, on the other hand, led to the fact that the government listed that subsidization plainly in the state’s general budget of 2005/2006 with the value of 22 billion pounds. Nonetheless, due to the international rise in the price of oil, the Prime Minister declared on Feb. 2, 2006 that the government decided to increase the approbations allocated to oil in the budget of 2006/2007 to 50 billion pounds.
Since Dr. Nazif took over in the middle of 2004, it has been clear that he had an attitude towards the subsidies’ system due to its negative effect on the general budget that caused deficits which increased in these last years. These deficits also negatively influence the inflation rate. Finally, this rise in the inflation rate has a negative effect on the steadiness of the exchange rate, and consequently on the government’s ability to attract foreign investments that are believed by the government to carry the Egyptian economy’s salvation in their hands. After the taking over of Dr. Nazif’s government, the representative of the Monetary Fund stated in Al-Ahram Newspaper on Aug. 4, 2004 that carrying out the reformation in a precise manner is healthy for the economy. This can be done nowadays through decreasing the deficit in the general budget by 1%, half of which comes through increasing the income, while the other half through decreasing the expenses. This would allow the treatment of the present situation in five years. In addition, he called to reevaluate the subsidization programs in a way that allows decreasing the expenses of the governmental budget.
Many declarations were issued afterwards in the same direction by the ministers involved in the economic process. The Minister of Investment proclaimed in Al-Alam Al-Youm Newspaper on Dec. 27, 2004 that efforts should be exerted to treat the problem of high inflation through controlling the deficit of the general budget since it is the main source of inflation. He then declared in Al-Ahram Newspaper on Sep. 9, 2005 that the reformation agenda of the government became known: it aimed at reducing the deficit of the budget, and stabilizing its functioning. However, declaring the intentions before foreign entities is often more frank; Dr. Ghali the Minister of Finance declared in the Economist Conference that was held in February, 2005 that the government is now trying to control the deficit of the general budget, and that this deficit shall be decreased in the next general budget through the procedures run by the government among which are some alternatives to grant the subsidies to those who are eligible. He further emphasized in 2005 in a meeting with International Monetary Fund (IMF) in Washington, "I anticipate that the deficit percentage will decrease to 6.5% / 7% in 2005/2006, and that it shall decrease even more in the next fiscal year." Also, the Prime Minister made himself quite clear during Davos Conference that was held in January 2006 when he stated, "The government is working on restructuring the subsidies’ system in a manner that guarantees that those who are really eligible get the benefit. We expect that this will take place within three years during which various alternatives will be considered, among which is turning it into a financial aid."
We firmly believe that there are several defects in the commodities subsidies’ system; subsidized commodities that are unrestrictedly distributed such as bread, and petroleum products as made use of by both the rich and the poor. Although the rich often make use of them more extensively. The commodities promoted with lower prices in the market are but a means for agents to interfere and corruption to dominate. Nevertheless, it cannot be denied that it represents a major support for the limited-income groups; we can never give it up unless another more efficient and fair alternative is proposed. We fear that the discussions held around its negative aspects are but an implement to pave the way for abolishing it in exchange for a couple of pounds that will disappear in the shade of inflation.
4-Putting an end to antitrust and enactment of competition
The statement of the government pointed out that among its achievements to protect the limited-income group is the enactment of competition and antitrust law, in addition to the fact that a draft law of the consumer protection was submitted to the People’s Assembly and the Shura Council to be reviewed.
We all agree on the fact that opposing monopoly is a vital process for all the countries that follow the rules of the economic market. Eng. Rasheed Muhammad Rasheed, the Minister of Industry, stated in Al-Mosawwir Newspaper on Dec. 24, 2004, "We as a government have always declared our moving towards free economy policy. Therefore, we are in dire need to pass a law that prevents monopoly. I am in 100% need for that law."
Preventing monopoly is necessary to ensure that the consumer gets the goods with the highest quality and a reasonable price. It is also vital to revive the national economy. That is because whatever the government carries out like reducing the customs or the taxes to lessen the prices, the monopolists shall never respond as long as they control these prices. It is so dazzling that the law passed in the People’s Assembly one year ago has not been applied yet in spite of the dire need to resort to such a law as mentioned.
It is worthy mentioning that this law, in the way it was set, is not efficient to oppose monopoly, and regulate competition on two major sides:
a- The authority assigned to execute the law is one of the bodies of the executive authority. It is set as a condition that the specialized minister or he who is commissioned by him shall approve running the legal procedures in monopoly cases. It was supposed, however, that this authority shall be an independent one to guarantee impartiality.
b- This law completely neglected the phenomenon of group monopoly which became widely spread in Egypt. The cement industry stands as a clear example for this fact; about ten investment groups who bought the companies of the public and private sectors manipulated in co-ordination amongst them the cement prices in Egypt.
Fourthly: Improving the provided services
The programs set to raise the standard of services are considered among the programs of social dimensions, in addition to the programs that protect the limited-income groups, since they are the main beneficiary categories as the rich can afford these services on their own. We will tackle the government’s efforts during the last year to provide these services as well as its plans in this regard for this year through dealing with the three main fields of these services:
1. Educational Services
2. Health Services
1. Educational Services
The government’s statement dealt with its achievements in the last year in the educational field through what the government called partial achievements: the establishment of 800 schools, the approval of establishing 12 private universities, in addition to 12 higher institutes and private universities which the educational authorities started to launch in 2005/2006. Moreover, 150 projects were carried out for developing the educational process in 90 colleges with a total cost of 70 million pounds.