Sisi economics: Theatre of the absurd

#EgyptTurmoil

Waiting for Egypt's economic revival with Sisi at the helm is like waiting for Godot

Amr Khalifa's picture
Monday 20 March 2017 15:27 UTC
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Sacrifice, with victory as the supposed long-term goal, is central to both Egypt’s military ethos and a central driver of President Abdel Fattah al-Sisi’s economic mindset.

In early November, when the Egyptian government devalued its currency, I spoke with economic experts who warned that it was a strategy that could result in explosive inflation.

Could Sisi they wondered, counterbalance the pain with policies that would soften the blow? It was a gamble.

Sure enough, in the intervening 16 weeks, Egypt has seen inflation zoom from 14 percent to over 30 percent by the end of February.

And nearly five months later, though there have been some positives, the report card for Sisi’s economic reforms is mostly cloudy, with chances of rain.

In Egypt, the theatre of the absurd is not something you watch, it is something you live. Those awaiting economic revival with Sisi at the helm may as well be waiting for Godot.

Let them eat cake

“Price hikes are burning people. The solution does not lie in subsidies. There is something called deflationary policies which is the purview of the Central Bank and the Department of Finance if they understood their duties,” Egyptian economist Fatma al-Asyooty blasted away on Twitter, about six weeks ago.

If, as a regime, you decide that risky reforms are in order, is it not a dereliction of duty to fail to take the necessary precautions to insure that an already unstable society isn’t further destabilised by those reforms?

Inflation was a risk understood by all parties and yet talk to any Egyptian, educated or not, from the lower classes, and in some cases, stretching to the upper rungs, and there are few left unblemished by it.

In comments reported earlier this month, Egyptian Finance Minister Amr El Garhy did not deny mushrooming inflation. Yet it must be awfully frustrating for an Egyptian who, on average, makes less than $3 a day to see a minister whose glasses appear to be worth at least three months’ salary, whose suit could feed a family of four for six months, tell them he believes inflation "will peak in February and March but then it will start to subside".

Attempts to ease fears have done little to slow down market-wide price rises from foodstuffs to health to household goods. The economic powers-that-be may be in the numbers business, focused on economic models, permutations and manipulations, but they lack the political dexterity necessary to manoeuvre this danger zone.

Rather than project an image of “change comes at a cost” which equates, in the mind of many, to unfurling a Marie Antoinette-esque refrain "let them eat cake", those in charge of Egypt’s economy - and ultimately the buck stops with Sisi himself - need to acknowledge the depth of the crisis and its daily effect on tens of millions of Egyptians and formulate and execute a plan.

But, in Egypt, rational policy making is as rare as a snowy day and a general did, in fact, tell Egyptians to "go hungry".

Touch the bread, threaten your rule

This, potentially, politically deadly combination of detachment from the public and lack of preparation of a social safety net nearly caused an explosive situation earlier this month

With the public already suffering food price increases soaring beyond 40 percent, the supply minister decided to limit bread rations to bakery owners.

The move was meant to forestall state-run and private bakery owners from reselling subsidised flour on the market at a huge profit. But it had the effect of hugely limiting access of those without ration cards to subsidised bread.

The original plan was to drop the quantity of subsidised loaves supplied to each bakery from between 1,000 and 4,000 to only 500. Bread in colloquial Egyptian Arabic is a3ysh which translates as "life". Bread is a literal must in a country where more than 27 percent of the people live under the poverty line.

That same poverty line threatens to engulf millions more as a direct impact of the very same IMF reform policies naively implemented by a regime way in over its head.

So, it should have come as no surprise that any attempts to de-subsidise bread could have explosive results. Touch their bread and they will threaten your rule: that’s the way it was in 1977 when Anwar Sadat ruled and it remains so until this day. And erupt the people did.

Over two days, the 5-6 March, demonstrations by ordinary, apolitical Egyptians spread from Kafr el-Sheikh to Giza, Cairo and Alexandria and Minya. Keep in mind that in 1977, the average life expectancy for an Egyptian was 56.2 years of age, and life expectancy has risen to 71.1. This increase, coupled with an exploding population of over 92 million, makes bread, and the management of its subsidies, an existential quagmire for any regime.

In an Alexandria working-class neighbourhood, the scene spoke volumes as policemen were overwhelmed by hundreds of veiled women and working men who screamed a simple, but telling, cry: “We want bread, we don’t have enough to eat."

With lives threatened, no protest law could silence these Egyptians. Instead, hundreds in various demonstrations rushed to the streets shouting, “Down with Sisi.” So volatile was the situation, protestors surrounded a local supply ministry office in the Alexandria neighbourhood of Saba Mat and a high-ranking supply official had to flee.

Shortly after filming, news reports confirmed, police were rushed into the demonstrations not to shoot, but to deliver much-needed bread – for free, as the government was quickly reminded how destablising crossing certain red lines can be.

Within 15 hours of the multi-governate protests, Supply Minister Ali Meselhy wiped out the planned reduction in rations. This time, a potentially massive crisis and possible face-off was avoided.

But structural and ideological issues remain. A detached, arrogant regime continues to make the same mistakes repeatedly: zero transparency in governance, no discussion, not even the appearance of democratic will.

In Egypt, democracy is a facade; the IMF agreement was approved by the Egyptian parliament four months after the fact. Keep this up and Sisi and the gang need no enemy as they are their own.

Bogged down reform

Though painful, the economic reforms have included efforts by the government to increase foreign direct investment to halt the hemorrhaging. Chief among such efforts is a proposed law that could be a boon to foreign investors.

The proposed law looks to address certain chronic issues. Chiefly, it enables foreign firms to repatriate profits, increases the percentage of foreign employees per company from 10 percent to 20 percent (though this doesn’t help rising Egyptian unemployment), and decreases the antiquated bureaucracy of establishing companies within the Egyptian marketplace.

But - and in Egypt there is always a but - the law has been bogged down in discussion since late December.

Particularly in the weeks immediately after the 3 November devaluation, the government has tried to claim victory, saying its policies would bridge the gap between the official exchange rate and the parallel market rate. But there are clear signs the government is losing this battle.

By late February the pound had “improved” to 15.72 against the dollar. With March’s arrival, however, the pendulum began to swing in the wrong direction, hitting 16.3 pounds to the dollar. One week later, the dollar began to broach the 18 EGP mark again, with some experts suggesting that with Ramadan on the horizon, when the holy month increases demand, it could soar to 20 EGP.

It’s worth mentioning that there has been an influx of dollars into the financial system since the reforms, but this may not be so much investor confidence as foreign currency traders seizing an opportunity.

Looking down the barrel

While some market-oriented fluctuation was to be expected, more than 12 weeks after the initial shock of the devaluation, stabilisation or some semblance of it, should have been in the offing.

Instead, both government and citizenry are looking down the barrel of a loaded gun. A rising dollar will only further devastate millions of Egyptians silently seething under the pressure of ceaseless inflation and challenge a central bank and government that seem insistent on blaming the current economic downfall on the Arab Spring.

So long as there is no sense of responsibility for the current morass, how can local and foreign market confidence increase in monetary policy?

Sisi’s popularity has taken a prodigious hit on the heels of the devaluation and reforms. The autocrat has been, surprisingly, resilient, maintaining an ironclad hold on power while an unyielding protest law holding most at bay.

And now he has two more developments in his favour: an American president who thinks he is a "fantastic guy" and a Saudi Arabia returning to a favourable deal which provides Egypt with much-needed petroleum product shipments. Sisi must feel the picture is looking bright.

It wouldn’t be the first time he has made a mistake.

Amr Khalifa is a freelance journalist and analyst recently published in Ahram Online, Mada Masr, The New Arab, Muftah and Daily News Egypt. You can follow him on Twitter@cairo67unedited.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Eye.

Photo: Dozens of Egyptians take part in demonstration in front of a government office in downtown Alexandria on 7 March 2017, against the decision of the supply ministry to limit the distribution of subsidised bread to holders of a new system of digital cards issued by the ministry.