Egypt’s subsidy system badly needs reform
Flawed system. An Egyptian worker sells subsidised food commodities at a government-run supermarket in Cairo. (Reutres)
2017/03/26 Issue: 99 Page: 20
Cairo - Angry reaction to a recent move by Egypt’s Supply minister to reform the subsidised bread distribution system underscores the challenges the country faces in addressing problems in its food subsidy system, experts said.
Ali Moselhi, who took over the Supply portfolio in February, came under pressure in March because he sought to prevent bakers from amassing millions of dollars through a loophole in the subsidised bread distribution system.
Bakers use government-supplied electronic cards to register the distribution of millions of loaves of bread on the Supply Ministry’s computer system, even as they allegedly distribute far fewer loaves than the number registered on the system. The bakers are paid for the registered number of loaves although, the ministry said, this number is far from accurate.
“The bakers get rich by stealing the subsidies allocated to the poor,” Supply Ministry spokesman Mohamed Suweid said. “We want to put an end to this.”
Corruption in the bread subsidy system costs Egypt $200,000 every day, the Supply Ministry said.
This, experts said, was minor when it came to corruption within Egypt’s overall subsidy system. Egypt spends $1.6 billion a year to subsidise bread and $2.7 billion to subsidise food every year. Food, energy, water and electricity subsidies combined cost $12 billion annually.
“The sorry thing still is that almost 74% of these subsidies go to the rich, whereas the very poor get the remaining 26%,” said Medhat Nafei, an economics professor from Cairo University, quoting independent studies. “Those who most deserve the subsidies do not get them.”
A look at the categories of citizens receiving the subsidies supports Nafei’s view. About 70 million Egyptians are registered in the food subsidy system. They include — apart from the country’s 6 million civil servants and the millions of poor self-employed citizens working in workshops or selling cheap imported wares on the streets — university professors, army generals, medical doctors, journalists, engineers and moneyed traders.
“Do these people really need the subsidies?” Nafei asked. “Of course they don’t.”
Egypt spent $3.4 billion to subsidise energy in 2016 but those who ended up benefiting from the subsidies were the approximately 9 million Egyptians who own cars and the rich who use subsidised gas at home for cooking. That same year, the government spent $1.6 billion to subsidise electricity but most of these subsidies went to rich Egyptians.
Experts said the issue was not only about millions of citizens undeservedly benefiting from the subsidies but about cartels that guarantee the continuity of corruption within the subsidy system.
Moselhi’s plan to eradicate corruption within the electronic subsidised bread cards system was to limit the number of loaves at bakers’ disposal to actual needs in each district.
Bakers resisted the move by spreading rumours that the minister wanted to cut subsidies. This led to thousands of poor Egyptians taking to the streets to accuse Moselhi of planning to make their lives tougher and the minister backpedal.
“The minister was, in essence, trying to give tough time only to those who enrich from the subsidy system at the expense of the poor,” Suweid said. “This, in fact, showed us that the fight against corruption would not be easy because those benefiting from corrupt systems would do everything possible to resist reform.”
Nevertheless, reforming the subsidy system is indispensable for keeping the lid on poverty, experts said.
The case for Egypt’s poor (27.8% of the population of 92 million) worsens because economic and social welfare programmes benefit the rich, not the poor, experts said.
“Reforming the subsidy system and ending corruption are matters of utmost urgency for the stability of this country,” said Medhat al- Sherif, a member of parliament’s Economic Affairs Committee. “This system only benefits subsidy cartels and those who do not deserve it. As for the poor, they get nothing but the crumbs.”