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Al-Sisi raises prices for the poor to subsidise the wealthy

July 18, 2014 at 11:08 am

While “social justice” was one of the primary demands of the popular uprising in 2011, the time since such calls reverberated around the streets and squares of Cairo has seen the turmoil-ridden country burdened by continuous unrest. Not only is the economy shattered but there is also anything but social justice now or in the future outlook for Egypt.

On July 3 last year, General Abdel Fattah Al-Sisi stood in front of the Egyptian people and insisted that they needed to be led by someone who will be gentle and compassionate with them. Eleven months later, Al-Sisi was running for president and in his brief campaign he assured the people that state-subsidised energy and commodities, vital to the livelihood of so many Egyptians, would not be removed instantly.

“People would react better if we increase their income before we increase prices,” Al-Sisi claimed, adding, “If we just removed the subsidies today from electricity, from gas, from fuel, people won’t be able to cope. We need to first make the people richer then we can work on cutting the subsidies.”

However, just days after his inauguration as president of Egypt, the leader of the military coup began to issue decrees under his seemingly probable austerity rule. A compassionate leader did not emerge in Al-Sisi, and subsidies were cut without the prior increase in wages as he had promised.

Saviour of Egypt?

In a surprising move which did the opposite of what was expected from the man deemed to be the saviour of Egypt, Al-Sisi increased the prices of fuel and commodities by slashing subsidies. The move hit an already struggling and dissatisfied populace reeling from a broken economy, and did little to quell unrest; he even enraged his own supporters. A subsidy cut was anticipated at some point, but many were left disillusioned by the unprecedented hike that was announced when things were already very bad for so many people.

Al-Sisi had advocated austerity repeatedly to narrow the budget deficit; he described his decision to increase prices as a “bitter medicine” that should have been taken before. “When you asked me to run for presidency, the agreement between me and you was that you bear with me,” he told the angry masses.

Energy and food subsidies account for about a quarter of Egypt’s state budget. Previous leaders have avoided any decisions regarding the subsidies because nearly 40 per cent of the population of 86 million hover around the poverty line of $2 a day and rely on government subsidies of wheat and fuel for survival. The International Monetary Fund (IMF) had demanded such reform of subsidies in order to reduce the country’s deficit, and had previously denied President Morsi a much-needed loan as long as the subsidies remained in place.

The price hikes, which took effect at midnight on July 4, followed an increase in electricity prices a few days earlier. On July 3, it was declared that petrol prices would rise by a minimum of 40 per cent and a maximum of 78 per cent. The fuel price rise saw the highest rise of 78 per cent for 80 octane petrol, used mostly by old vehicles that still fill Egyptian streets whilst 92 octane petrol, used by newer, more expensive cars, went up by 40 per cent; 95 octane petrol, used by high-class cars belonging to a small percentage of the population went up by only 7 per cent. Liquid petroleum gas fuel, often used by taxis, rose by 175 per cent, and diesel, which fuels most of the minibuses that transport the poorest people in Egypt, went up by 64 per cent.

Follow-on rises and an angry people

Higher prices for petrol, diesel and natural gas are resulting in rises in transport costs, some of which have doubled; this is having a huge impact on the price of commodities, underlining the inflationary impact such an increase will have on an economy where cheap fuel helped to suppress the prices of almost everything. Notices of other, secondary price increases followed promptly. Meat prices, which were already high, increased by 15-20 per cent following the rise in fuel prices due to added transportation costs, and poultry has seen a rise of 25 per cent.

Zeinab Awadallah, President of the Consumer Protection Association, condemned the cabinet’s new measures, saying that fuel and electricity are essential commodities that are linked to all other commodities and that a “200 per cent increase in prices of almost all other basic commodities” is expected with this hike.

Cairo’s already heavily congested streets, where tempers flare easily, have been seeing angry taxi and minibus drivers, as well as angry citizens who are forced to deal with the burden of the price hikes with their still low incomes; their challenge is to provide for their families with the little they have. “He [Al-Sisi] is accelerating the mobilisation for another revolution,” an Egyptian bus driver said.

Prime Minister Ibrahim Mehleb sought to justify the cuts by saying that they were needed to fix the economy and that some of the money saved would be spent improving education and health services. What education are the Egyptian youth getting, though, when they can be arrested for having a Rabaa sign on their ruler, and their teachers spy on them ready to report any behaviour which may indicate that the students oppose the current regime?

Mehleb envisions that subsidy cuts will save the government 50 billion Egyptian pounds ($7 million) in the next 12 months, while Al-Sisi says that the price increases are needed to save the country’s debt from getting worse. But what use is the improvement in the country’s debt when its own citizens are not able to make a living? The announcements received much criticism even from people who have supported the former defence minister staunchly since the July 2013 coup. The economic logic is lost on the street and holds little sway over a people surviving for decades on the subsidies. Indeed, the increases are most unfair to the widest sector of the society who are already barely surviving and are more concerned about how they will put food on the table for their family and pay the bills.

“At first I was optimistic when Al-Sisi won,” said Sayyed Abdullah, a supporter of the president. “I hoped that there would be security and that we would have work. Now I see that the country is heading in an unknown direction.”

The general budget for this year has also seen a drastic change in social welfare subsidies, which targets the poor and those with low incomes. Subsidies on medicines and baby milk have reduced by 55 per cent; subsidies on housing for low-income families have been reduced by 50 per cent; and subsidies on comprehensive health insurance are now eliminated altogether. In contrast, the budgets of the army, judiciary and constitutional court have increased by 28 per cent.

The subsidised bakeries on which many citizens rely have increased the price of a single piece of bread from five Egyptian pence to 35 pence, a seven-fold jump, taking the cheapest poor man’s meal of a falafel or broad-bean sandwich from 50 Egyptian pence ($0.07) to two pounds ($0.28). Before the coup, mangoes were two Egyptian pounds per kilogram; now they are 14 to 16 pounds per kilogram ($1.96-2.24). Similarly tomatoes went from 75 pence ($0.10) to 6-8 Egyptian pounds ($0.84-1.12).

“I used to pay 75 pounds ($10.50) for my electricity,” said one man. “Now my latest bill is for 375 pounds ($52.43) and the electricity is cut from four to six hours every day!”

On top of electricity increases, household gas has increased in price by a massive 350 per cent.

Who is to benefit?

So, who do these increases benefit? Is it for the citizen, as Mehleb said, to take from the subsidies to put into education and health? Or is it for the government which has reduced the general budget from 356 billion Egyptian pounds ($50 billion) to 240 billion ($34 billion), which means that 116 billion pounds ($16 billion) needs to be paid from the pockets of the poorer citizens?

How will the people cope with the sudden increase in prices of fuel, gas, electricity, transportation, medicines and food? How can they cope with all of this on top of the existing human rights violations in the ongoing crackdown since the coup last year, including the massacres, random killings, imprisonments, rapes and mass death sentences?

Will the Egyptians accept this, as Al-Sisi said when he told them that they should “bear with me” in obedience, and accept the status quo as they have done for the previous six decades under all the autocratic regimes Egypt has endured? Or will the people wake up and realise in whose interests all of this is being done? He told the people that they were “the light of our eye”, so why is Al-Sisi imposing a life of austerity on his beloved? Why is he not lifting the pressure from them?

If indeed these increases are for Egypt, then why doesn’t Al-Sisi collect the taxes from all the corrupt businessmen who have robbed Egypt of its wealth? There are many such people, such as Naguib Sawiris who, it is alleged, owes Egypt 14 billion Egyptian pounds ($2 billion) in taxes. Interestingly, but not surprisingly, Sawiris praised Al-Sisi’s move in cutting subsidies. After all, it is a move that will only hit the financially-challenged among the people.

“These steps place new burdens on the poor and the people living on limited income, who were suffering even before the latest increases were applied,” says Nabil Zaki, spokesman for the leftist Tajammu Party, which backed the military ouster of Dr Mohamed Morsi. “These measures mark a relapse to policies whereby the government repays its debts from the pockets of the poor. The current government should have taken other measures to control the budget deficit such as imposing taxes on luxury property and combating corruption. Such steps would bring the state billions of pounds.”

Some have it tough, while some have it all

Al-Sisi asked every Egyptian to be ready to sacrifice to help the country’s battered economy, and the imposed cuts were just that. He said that Egyptians must be willing to make sacrifices and put the nation’s interests before their own. The cuts in the state budget and in the subsidies are intended to reduce the country’s economic deficit, but are the cuts also imposed on Al-Sisi himself and the armed forces? One would think that he would lead by example; whilst Al-Sisi said that he himself will sacrifice and donate half his salary “for Egypt”, how generous was this offer, and will he be living a life of austerity like the people he is leading?

During the latter part of the rule of interim President Adly Mansour, appointed by the then General Al-Sisi following the coup against democratically-elected Morsi, a law was passed which allowed the incoming president a salary increase from 2,000 Egyptian pounds ($280) monthly, to 21,000 Egyptian pounds ($2,937), on top of which there was a further 21,000 Egyptian pounds in allowances, bringing the total monthly income of the president to 42,000 pounds ($5,873). So when Al-Sisi offered half his salary in the bid to do his bit of austerity for Egypt, he is still, in fact, receiving what was supposed to be his annual salary, every month.

At a conference attended by senior military officers in April, Al-Sisi announced that Egypt’s “economic circumstances are very, very difficult” and added that a generation or two may have to sacrifice in order that future generations are able to live. However, it appears that the sacrifice does not apply to the police and armed forces, who have seen their wages increase since the coup last July. Indeed, it has been reported that 25 per cent of the State’s savings from the increase in fuel prices will go to the Army.

Al-Sisi stressed that the state of austerity is independent from other projects that are important for Egypt. For example, building four new prisons costing up to one billion Egyptian pounds ($140 million); increasing the budget of the interior ministry; raising the salaries of police officers by 38 per cent to ensure their loyalty; and purchasing 50,000 new weapons to ensure the elimination of all opponents of the coup.

The president also reassured armed forces officers by doubling their salaries; establishing clubs and hotels for them at the cost of 150 million Egyptian pounds ($21 million); and purchasing Land Cruisers for some of them as gifts. At the same time, he asked poor Egyptians to walk to work instead of taking transport to save some money “for Egypt”. Adding insult to injury, when Al-Sisi emerged in a staged PR opportunity riding a bicycle and stopping to talk to the people, media outlets failed to mention that the bicycle he was on cost 40,000 Egyptian pounds ($5,593).

Egypt weeps at what it has become. As one elderly Egyptian lady said: “I feel so sorry that the bloodshed and violations of people’s honour did not make a difference, but when prices went up, people reacted.”

In Egypt, it is the poor and needy who are sacrificing at the expense of the powerful, who are getting richer and more powerful. Where are the calls for “social justice” upon which the great Revolution was based? Mubarak’s autocracy appears to have been much kinder on the people than the present day austerity. It is but a matter of time before the people say “enough is enough” and the calls for “social justice” will once again resonate around the streets and squares of Cairo.

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