Weaning Egypt off Foreign Aid

Article Summary
Prominent Egyptian analyst Fahmi Howeidi discusses the various strategies that have been proposed to bolster the Egyptian economy and prevent reliance on foreign aid. He rejects short-term solutions, instead advocating responsible taxation and cutting government subsidies to major industries.

If we keep looking beyond our borders before solidifying our position at home, it will be a long time before Egypt regains the strength necessary to stand up to any “oppressor” who belittles or attempts to harm her.

The preceding summarizes the testimonies that I collected last week following the publication of my article on March 6 concerning the scandal surrounding the deportation of the Americans accused of providing foreign funding to civil organizations, a case that revealed the extent of the Egyptian regime’s weakness in dealing with American pressure — weakness that prevented it from telling Washington “no”. I asked that we transform the crisis into an opportunity to regroup around national issues and reorganize our priorities so that Egypt may recover her neglected and wasted strength.

My call prompted many replies, some of which I received directly, while others I had to go looking for. Among them was a letter filled with anger and bitterness from an old reader who asked that his name not be mentioned. He was convinced that he was “beating a dead horse”, yet wanted to satisfy his conscience with a letter.

Our friend wrote that Egypt was not a weak country, but a ravaged and plundered one — ravaged by those who governed it for many decades and plundered by local and foreign interests. As an example of the great plundering of Egypt’s real-estate wealth, he cited the large swaths of land distributed to a bunch of beneficiaries associated with the previous regime. This same bunch colluded with others outside the country to divvy up the loot through a variety of means. He added that this scandal was nothing compared to the one that had recently emerged concerning the Red Sea-region gold mine. He went on to say that modern Egyptians failed to even extract the same amount of gold that the pharos were capable of extracting 5,000 years ago, and so the task went to an Australian company which, in turn, divided the treasure among nine other companies. The really extraordinary part was that the foreign partner gained the right to appropriate 70% of the Sukari mine’s production, while the Egyptian partner’s take was limited to 30%, out of which Egypt must pay the costs associated with extracting the gold. Worse even was the 30-year term of the contract, during which time Egypt’s gold wealth is siphoned off for the benefit of foreign companies.

The author of the letter referred me to a report published in Al-Ahram newspaper in its March 9 issue, on the occasion of the People’s Council Committee on Industry and Energy’s visit to the Sukari mine site. The report clearly noted that Egypt had been “subjected to a grand deception and lured into signing a gold-production agreement whose terms were highly deleterious.” The report further added that the Gebel Sukari (mountain) contained high levels of gold ore, considered among the highest in the world, whereby each ton of rock contains six grams of gold, while the average concentration in other mines falls between 1.5 and 4 grams per ton. In addition, suspicions abound about the nine companies over-mining the site, as well as doubts about the level of Egyptian oversight over what is being extracted.

Our colleague Dr. Ahmad El Najjar, editor-in-chief of the economic report published by the Center for Strategic Studies at Al-Ahram, confirmed this opinion. In the same context, he published an article entitled “The Current Economic Servitude and Colonial Plunder of Egypt” (Al-Ahram February 16, 2012), in which he mentioned an intriguing — at least for me — piece of information to the effect that foreign and Arab investors brought $28 billion into the country during the last three years of Mubarak’s rule if American assistance is counted, and took out of the country around $86 billion, which is equivalent to 500 billion Egyptian pounds (EGP), or twenty-four times the value of aid received by Egypt during that period.

In another article published by Al-Ahram on March 1, 2012, he strongly criticized accepting cash donations or the practice of Egyptian workers relinquishing a day’s pay from their monthly salaries to make up for American aid, which some in Washington had threatened to withhold during the last crisis between the two countries. In making his case, he raised the following issues:

The value of one day’s pay out of the salaries of government workers is less that 60 million EGP, while its value for all public and private-sector employees would not exceed 150 million EGP, the value of American military and civilian aid being around $1.55 billion, which is equivalent to 9.3 billion EGP.
This American aid that is brandished as a stick to threaten Egypt remains marginal in value compared to Egypt’s gross domestic product, which reached 1,373 billion EGP in the last fiscal year. It is expected to reach 1,570 billion this current year (2011/2012), which means that the value of American aid is worth less than half a percent of Egypt’s GDP. It constitutes a very small proportion that Egypt can easily do without.

The relationship between the state and its citizens cannot be based on donations. The imposition of taxes upon those able to pay them is the proper formula that should govern such a relationship. Had the taxation system been re-evaluated and its rates made multi-tiered and progressive, such as it is in most countries of the world, and the state’s dues were rigorously collected, the results would have been different. The biggest capitalists in Egypt are in arrears to the tune of 63 billion EGP, equal to seven times the value of American aid.

Egypt could collect additional yearly revenues equal to more than twice the value of American aid if it were able to impose fair prices upon its gas exports. One could use the precedent set by the US in Iraq after its occupation in 2003, when the contracts entered into by Saddam Hussein’s regime with foreign oil companies were canceled under the ruling that they were not binding to the Iraqi people, and new agreements were signed by the Americans with companies from countries that participated in the invasion of Iraq. Egypt could embark on a similar campaign to sign new agreements that are just and fair, rid herself of the colonial plundering which has plagued her, and pay off the debts that Mubarak’s regime shackled her with.

Dr. Hazem El Bablawi, former deputy prime minister and ex-finance minister, had additional comments to make, most important of which were the following:

Egypt’s economic situation has not been addressed with the degree of seriousness and firmness that it deserves, neither by the authorities, nor by the community at large. In the book he published chronicling the four months he spent as finance minister, he wrote of a 13-point plan (which was finally adopted by the finance ministry) aimed at rescuing the Egyptian economy; but he holds that the government was not candid in informing Egyptian society of the truth, and had not yet adopted a belt-tightening policy. It did not, for example, follow in the footsteps of British Prime Minister Winston Churchill when he took office during the Second World War, telling his people honestly that there would be blood, sweat and tears before victory could ultimately be achieved. Society, on the other hand, seems to be rushing to reap the rewards that it undoubtedly considers legitimate. Because of this haste, people appear more interested in picking the fruit first and working the land second, while the correct sequence of events should be the exact opposite.

As a result, people are competing to issue demands and collect rights, without anyone calling for obligations to be fulfilled. At a time when calls were made for the attainment of many a political demand, none of the elites that opposed this goal paid attention to the necessity of calling people to work. No one proposed, for example, that work hours be voluntarily extended by one unpaid hour in order to stimulate production, considered the first step in the sought-after rescue of the economy. This practice is in itself a better and more effective step than that of donating one day’s wages to the state coffers, for example.

Subsidizing petroleum products imposes a very heavy burden (of $95 billion) on the state. Relief from that burden must start with cancelling the subsidies for industries that are heavy consumers of energy (iron, ceramics, cement and aluminum). These industries’ products are sold at world market prices even locally, while they pay the local subsidized prices for the energy they consume. This means that the state is, in reality, not subsidizing consumers, but is increasing the investors’ profit at the expense of consumers.

There is nothing wrong with obtaining foreign loans that both the lenders and borrowers benefit from, but an appropriate atmosphere must be created internally. Therefore, one must not cast the blame upon the Arab countries that have not invested in Egypt. The question should not be why they have not come, but why we have not been able to attract them to Egypt.

Those I talked to all agreed on the futility of the donation campaign that some good-hearted amateurs have embarked upon to make up for American aid, in the eventuality it gets withheld, or the idea of forfeiting one day’s wages. For, in addition to the ineffectiveness of such measures, the experts consider such calls for action well-meaning oversimplifications of the issue which grab the headlines but don’t seriously contribute to salvaging the situation. Among others things, they said that these contributions, in addition to representing a mere drop in the ocean, are but temporary aids that serve to transfer liquidity among people inside the country, and don’t represent any meaningful addition to the nation’s economy.

These experts have a lot to say in diagnosing the economic health crisis that the Egyptian state suffers from and the ways to restore it to good health. Research was published by the executive president of the financial group Hermes, Hassan Heikal, in which he identifies six problems that Egypt faces, and ten solutions that he thinks would bring Egypt up to economic par with Turkey within one decade. Among those solutions: Stop the squandering of money on schemes such as subsidizing petroleum and energy costs. Impose progressive tax rates on individual incomes that would reach 25% for the highest income brackets (currently in effect in even the most capitalist of nations), and impose a tax, even if it were in the form of a one-time tax on fortunes that exceed $ten million, noting that Egypt’s wealthy people have not paid more than 1 or 2% of their yearly income in taxes. Begin executing major national projects, including the transformation of the Suez Canal from a waterway into a world center for trade.

Due to the multitude of opinions on the matter, and their agreement on some points as we have seen, it is unfathomable that those experts not be invited to a meeting, the goal of which would be to find consensus among them as to a “road map” to restoring Egypt’s economic health. It remains surprising to find those experts’ opinions scattered among newspaper articles and television talk shows, each of them living in his own universe, while the government languishes in its own, and the military council occupies yet another. Egypt has seen the establishment of an Advisory Council (that is not needed) to discuss political issues, and we have ignored the formation of a similar council for economic matters, which are much more urgent and pertinent. While the first council was proven to be useless, let’s hope that we find some use for the second one.

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