New York Times
June 9, 2011
David D. Kirkpatrick and Dina Salah Amer
CAIRO: Egypt’s economy, whose inequities and lack of opportunities helped topple a government, has now ground to a virtual halt, further wounded by the revolution itself.
The 18-day revolt stopped new foreign investment and decimated the pivotal tourist industry. The annual growth slowed to less than 2 percent from a projected 5 percent and Egypt’s hard currency reserves plunged 25 percent.
In a region where economic woes enraged an entire generation, whether and how Egypt can fix its broken economy will be a key factor in determining the revolution’s success. It could also influence the outcome of the revolts across the Arab region, where economic troubles are stirring fears of continued instability, authoritarian crackdowns, or even a backlash against what had appeared to be a turn toward Western-style market reforms.
“People are angry,” said Hassan Mahmoud, a resident of a slum near Cairo. He expected a better life after the revolution, he said, but instead he was laid off from his $10-a-day job in a souvenir factory. “People in the neighborhood are talking about going back to the streets for another revolution — a hunger revolution,” he said.
With Egypt’s first open election this fall, the challenge of meeting public expectations while nursing the economy back to health has prompted a wide-ranging debate over radically divergent proposals. These range from deep cuts to the bloated government work force and vast public subsidies, a leftist re-expansion of the state’s role in the economy, or even the Muslim Brotherhood’s plan to impose a 7.5 percent income surtax on all Muslims to fulfill their religious mandate to give to charity. Non-Muslims would not be required to pay — a distinction that could reinforce sectarian resentments. The major Western states are scrambling to address the growing sense of crisis by pledging a total package of $20 billion in assistance to the revolutions in Egypt and Tunisia, including debt forgiveness as well as loans from the World Bank and International Monetary Fund.
The challenge is steep. The revolution has inspired new demands for more jobs and higher wages that are fast colliding with the economy’s diminished capacity. In an indication of the desperation, the government said soon after the revolution that it would add 450,000 temporary jobs to the public payroll; an extra seven million people applied, said Ahmed Galal, a prominent Egyptian economist. Samir Mohamed Radwan, the interim Egyptian finance minister, recently told the BBC that in his current job he felt “like a prisoner.” With European travelers still fearful of post-revolutionary disorder, only stray cats paw the trinkets in the stalls of Cairo’s ancient market. Tourism, which accounts for more than 10 percent of the economy, has plummeted by 40 percent, officials say.
Strikes by workers demanding their share of the revolution’s spoils continue to snarl industry, and business executives say the demands are becoming self-defeating. “We increased wages after the revolution, and a month later the workers went on strike again and asked for even higher wages,” said Moataz El Alfi, chief executive of Americana, which runs fast-food restaurants here.
“They beat up the human resource manager and we had to close down the factory,” he said. “Everyone is jumping on the revolutionary wave and trying to reap extra benefits,” he added, “and it’s become chaos.”
Other say the drive to root out corruption among the business elite has frozen new activity. “The main sources of capital in this country have either been arrested, escaped or are too afraid to engage in any business,” said Ahmed Habib, 29, a construction executive. “Many of the contractors in Egypt obtained land by corrupt deals with contracts filled with question marks,” he said. “The government halted most projects to be restudied and the banks stopped lending.”
Many Egyptian economists and Western scholars say that the government of former president Hosni Mubarak tainted free market ideas like privatization because the spoils were distributed to the well connected. “There is a difference between capitalism and corruption,” said Lisa Anderson, a political scientist and president of the American University in Cairo. “It is just being drowned out by ‘the whole damn thing is corrupt.’ ”
Long moribund leftist parties have sprung back to life with calls for expanding public employment, increasing the minimum wage, and perhaps even renationalizing privatized industries. “We now have a rotten capitalist regime and rotten corrupt capitalists,” said Dr. Rifaat el-Saed, Chairman of Egypt’s leftist Tagammu Party. “If this ‘trickling down’ does not come by the will of the capitalist,” he declared, “it must come by the will of the state.” The Muslim Brotherhood, the Islamist group that is Egypt’s best organized political movement, is also disclosing for the first time the details of its economic platform, including its distinctive answer to Egypt’s chronic poverty: institutionalizing the obligatory Muslim charitable contribution known as zakat.
Abdel Hafez el-Sawy, a Brotherhood economist, said in an interview that the group proposed that the government require all Muslims to contribute 7.5 percent of their income to a privately run charitable institution under government oversight—essentially a flat income surtax. Although the charity would help the poor regardless of their religion, he said, Christians and other non-Muslims would not be required to pay. “We don’t want to force Christians to do something they don’t want to do,” he said. “We are looking for a way for the government to institutionalize this mechanism so we can fix the poverty problem we have,” he said.
The emerging liberal parties, meanwhile, are struggling to articulate an approach that would continue the Mubarak government’s increasing economic openness “with limits on the greedy aspects of the economy of the last 10 years,” said Mohamed Menza, one of the young organizers preparing the economic platform of a liberal party known as Egypt Freedom.
Mr. Menza said the new party was focused on “administrative reform,” so that ministries like Health and Education could help the poor more effectively. “The approach of the old regime was, ‘The state is too big, let’s make it smaller, period,’ ” he said. “It wasn’t at all, ‘Let’s make it more efficient.’ ”
Egypt’s food and energy subsidies are a favorite target because both benefit some who do not need the help while failing to assist many who do.
Egypt, a natural gas producer, now spends about a tenth of its gross domestic product — more than it spends on health and education — to lower the domestic price of gas, diesel and electricity below the international market price. Economists and liberals argue that the subsidy disproportionately benefits people who air-condition large houses and drive sport utility vehicles at the expense of the vast majority who ride buses home to small apartments. Phasing out the subsidies would leave plenty of savings to compensate the poor and working class in other ways, said Ragui Assaad, an Egyptian economist who teaches at the University of Minnesota. “There is a lot of low-hanging fruit.”
Impatience, however, is growing. Khaled Younis, 45, said he had to lay off the eight people he employed making tourist handicrafts in a slum near Cairo. “Many people here believe this revolution was a curse on us poor, simple folks,” he said. “They just want to be able to survive.”