Consumption down in Egypt but high commodity prices remain a problem
2017/11/19 Issue: 132 Page: 19
The Arab Weekly
Cairo - Consumption is down across the country in Egypt amid an economic reform programme aimed at strengthening the flagging economy.
“Among other things, the reforms aim to stimulate production and reduce consumption,” said Mohamed Maait, vice-minister of finance for treasury affairs, “and this is what is actually happening.”
Reforms, including the flotation of the Egyptian pound, a value added tax and the slashing of costly energy, electricity and water subsidies, were initiated in November 2016 to bridge a yawning budget deficit, increase foreign currency reserves and bolster investor confidence.
Although the currency flotation led to a rise in commodity prices, economists said they hoped the middle- to long-term effects would be positive.
As of July 2017, electricity consumption was 42% less than the previous year, the Central Agency for Public Mobilisation and Statistics said. Gasoline consumption fell 4.2% and diesel consumption 7.1% in the first quarter of the 2017-18 fiscal year, which began in July.
The reduction in energy consumption means savings of billions of dollars, Maait said. “The food, energy, electricity and water subsidies combined ate up one-third of spending in the state budget,” he said. “We are saving most of this money now thanks to the reduction in subsidies and consumption.”
Despite the savings, many Egyptians complained they are not seeing any overall positive effects, given high commodity prices.
One year after the currency flotation, commodities that were considered basic staples are now viewed by many as luxury items. The prices of red meat and chicken are double what they were a year ago. The costs of fruit and vegetables also are high, with Egyptians expressing frustration at their reduced purchasing power.
“The government can easily claim that it has succeeded in convincing the public to rationalise their consumption,” said Alia el-Mahdi, an economics professor at Cairo University. “This is not rationalisation but an impoverishment of millions of people who are no longer capable of meeting their basic needs.”
Almost one-third of Egypt’s population — more than 30 million people — is considered poor and any rise in commodity prices would increase the number of Egyptians living below the poverty line.
The government has increased spending on social welfare programmes and some food subsidies. About 70 million people are registered in Egypt’s food rationing system. The government has increased funds allocated for the system and plans to specify more money next year with the total elimination of energy, electricity and water subsidies.
However, a rise in the exchange rate of almost all foreign currencies against the Egyptian pound, induced by last year’s currency flotation, has led to a marked decline in imports and a rise in exports. The Trade and Industry Ministry said Egypt’s imports dropped almost $10 billion (19.8%) in the first nine months of 2017 compared to the previous year.
Exports of many products are rising, with textiles, vegetables, fruit and construction materials leading the way.
Economists expressed concern that rising inflationary pressures and a drop in the purchasing power of consumers would lead to a market recession and negatively affect investments.
The consumer inflation rate dropped to 30.8% in October, compared to 31.6% in the previous month, but the rate is still very high, economists said.
“True, consumers are rationalising their consumption but this is because they cannot cope with rising commodity prices,” said Farag Abdul Fattah, an economics professor at Cairo University. “A market suffering recession is the last place investors will like to go to.”