Economic reform, the only way forward for Egypt

Egyptians should base their heated arguments on the economic dilemma. They should accept harsh solutions that would be better taken under a national consensus

Jamal Khashoggi

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Supporters of Egyptian Field Marshal Abdel Fattah al-Sisi like to picture him as another Gamal Abdel Nasser. However, he certainly knows that if he wants to succeed as Egypt’s president, he should never be like Abdel Nasser, rather he should fix the Egyptian economy that was tarnished by the “eternal leader.” He certainly knows that Egypt's problem is the economy and that all those who came after Abdel Nasser tried to rebuild the economy but did not succeed.

President Anwar Sadat tried to make economic reforms under his “Open Door” policy, without compromising the structure of the rentier state and the command economy left by Abdel Nasser. The result was the emergence of a parallel economy producing what the Egyptians called “fat cats” who enjoy prosperity alone, away from the underprivileged majority. Hosni Mubarak made better achievements by hiring qualified economists, but the reality of a parallel economy continued. Mubarak once justified it using the “Trickle Down Economy”, a theory that became popular in the United States during the era of former U.S. President Ronald Reagan, who encouraged reducing taxes on rich people and giving incentives to businessmen, hoping to increase their incomes and thus affect the rest of the economy.

Politicians and intellectuals in Egypt would rather debate anything but the economy, perhaps because they all know that it is the real monster that can only be taken on through very painful decisions

Jamal Khashoggi

It is clear that this theory failed in Egypt and subsequently caused the Jan. 25 Revolution, the most important slogan of which was “social justice”. The problem is that politicians and intellectuals in Egypt avoid discussing the most important issue in their country, which is the economy. They prefer to deal with any other issue like such as discussing whether the state is civil or religious, civil or military, military or “Brotherhood." They also waste time discussing international conspiracies and "revolutionary" treatments for HIV and hepatitis. They would rather debate anything but the economy, perhaps because they all know that it is the real monster that can only be taken on through very painful decisions that may lead to a revolution, much bigger than what Egypt witnessed in the past three years. All the economic reforms made by previous Egyptian governments were mere tranquilizers and unfulfilled promises. The most important reason for the resignation of Hazem Beblawi’s government days ago was that it issued a decision to raise the minimum wage that had been implemented in January, but it did not include everyone. Those who were included did not enjoy the raise due to burgeoning inflation. Consequently, factional strikes and sit-ins spread across the country.

The difficult solution

Any future president of Egypt knows that the problem is simple but its solution is very difficult. The problem is that the state's income is less than its spending; The Egyptian budget deficit is about 240 billion pounds ($34.9 billion), equivalent to 14 percent of Egypt’s GDP during the last fiscal year, and the only possible solution is that these two numbers should at least be equal. This will only be possible by getting rid of Abdel Nasser’s legacy; the massive public sector, an army of unnecessary employees with more than six million employees who are expected to increase to seven million soon with the government's offer of permanent contracts for the temporary staff. This week, 75,000 teachers were offered permanent contracts, while the state subsidizes the prices of costly commodities, most notably energy which alone needs 140 billion pounds (20 billion dollars) from the state budget, along with the complex network of “protective” systems that restricted the economy and kept Egypt caught between a free market economy and a command economy.

During Mubarak’s term, they tried to address these issues, but the solutions were marred by corruption and exclusions. Despite being “unfair” for a lot of people, it helped in achieving good growth rates for the Egyptian economy overall, recording 7.1 percent growth during the peak of the global financial crisis in 2008; however a quarter of the Egyptian population living below the poverty line did not benefit from it. Despite all that, this is very good news compared with the growth rate during the first quarter of the current fiscal year, which did not exceed one percent.

Many countries have faced the same situation as Egypt, but “President” Sisi should look into two particular cases while reading and examining the changes that led them to get out of the bottleneck; it was not easy but rather expensive. As long as Egypt is paying an expensive price to impose security and restore the state’s respect for an individual- based regime, we cannot advise him to expand his national base through reunification and reconciliation; it is better to use this cost to serve the nation and not the individual, so that it won’t be a vicious cycle of another crisis but an opportunity to break the cycles of totalitarian rule to establish an economic renaissance for a pluralistic democratic society.

Taking note

The above mentioned two cases are Chile and Turkey, where chaos and inflation prevailed for decades, to the point that the army was prompted to intervene. Judging if it was praiseworthy or blameworthy does not matter now. In Chile, General Pinochet came to power in 1971 and ousted the elected government. He was very tough, to the extent that Chileans are still imprinted by the memories of his harsh years. Thousands are still missing. The current president's father died after being tortured in Pinochet’s prisons, but most of them admit that he succeeded in imposing economic reforms that his elected predecessors have failed to achieve. Thus he paved the way for what is known today as the “Miracle of Chile”. Even more, Chilean students of famous Nobel laureate economist Milton Friedman, led the economic reform in their country during the Pinochet era, applying Friedman’s theory regarding the “free market”, which led – according to what he says in his memoirs – to a “better performance in the economy, saving Chile from the central government and replacing the ruling military class with a democratic society”. Perhaps some Egyptian liberals would find better justification for accepting the development of the “on hold” democracy if they went through the ideas of the Milton Friedman school that is also known as “neoliberalism”. The theory believes that democracy works best in self-sustaining communities that enjoy a free economy. The Egyptian society is certainly not self-sustained on the economic level and does not enjoy a free economy, but one of the main challenges faced by the “neoliberals” in Eastern Europe and Russia is the corruption and abuse of the “minority” or what is known as the “oligarchy”, who now control the destiny of the country. President Vladimir Putin confronts them at times and lets them be at other times, they have not decided on the terms of their relationship with the state yet. Egyptian elites must recognize the existence of the “oligarchy” in their country, forming centers of power involved in the governance of the country, and they should admit as well that this case cannot be sustained under a fully democratic regime.

In Turkey, General Kenan Evren led a military coup in 1980 against an elected government after years of chaos. In the first two years of his term as president, Turkey saw dark days; tens of thousands of detentions and executions and like Chile, Turkish people are still searching for thousands of missing Turks. He then handed the presidency to economist Turgut Özal, who led the massive economic reforms related to the “neoliberal” school, opening the door for historic reconciliation between Turkey’s secular Kemalist legacy and its Islamic heritage. A decade later, the military rule withdrew, paving the way for an economic miracle in Turkey. In the end, the rulers left and Turkey and Chile remained. They have even topped the list of the fastest growing economies. Today, any Turkish or Chilean citizen can be sitting in an elegant restaurant, reading a newspaper that is freely criticizing or praising the government, and he can be discussing with his friend the upcoming elections in his country without being afraid of national security or being worried if he can pay the luxurious restaurant’s bill.

Egyptians should base their heated arguments on the economic dilemma. They should accept harsh solutions that would be better taken under a national consensus, unfortunately that needs a miraculous reconciliation that does not seem in sight. The only one who did that is novelist Ezzedine Choukri Fishere in his wonderful “prophetic” novel the “exit door”, which opened all the doors except the exit door. I reference Ezzedine Fekri’s character who comes to power, defeats all of his opponents in order to achieve the goals of the revolution, but fails when addressing the country's six million employees. The bureaucracy monster symbolizes the rentier state, perhaps because he was alone.
This article was first published in al-Hayat on March 1, 2014.


Jamal Khashoggi is a Saudi journalist, columnist, author, and general manager of the upcoming Al Arab News Channel. He previously served as a media aide to Prince Turki al Faisal while he was Saudi Arabia's ambassador to the United States. Khashoggi has written for various daily and weekly Arab newspapers, including Asharq al-Awsat, al-Majalla and al-Hayat, and was editor-in-chief of the Saudi-based al-Watan. He was a foreign correspondent in Afghanistan, Algeria, Kuwait, Sudan, and other Middle Eastern countries. He is also a political commentator for Saudi-based and international news channels.

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