“I don't know what to do. I really don't. Everything is so expensive. I came here thinking that I would save a lot, but I was wrong. The prices are still very high,” said Ahmed Abdel-Aziz, a civil servant in his late forties doing stationary shopping in Fagallah, a Cairo district traditionally known for offering inexpensive pens, notebooks and pencils that Egyptian pupils need to buy ahead of going back to school. Describing himself as “someone who has a reasonable salary — or at least what used to be a reasonable salary,” Abdel-Aziz said his spouse was also a relatively decently paid civil servant. “We only have two daughters. What about the poor souls who have four children,” he asked. Abdel-Aziz had never previously done his stationary shopping in Fagallah. “The girls would just go to any stationary store in Heliopolis where we live to buy whatever they needed. Last year I thought things were getting really expensive, and this year I decided to take a list of the things they wanted and buy them in Fagallah as the prices here are still cheaper than in Heliopolis,” he said. He knows he will have to come on another stationary shopping trip once school actually starts because there will be more demands. He also knows that in between the last week of August, when he was doing the stationary shopping for his daughters, and the end of September, when he will do the follow-up trip, he will have to take his children to do buy something new for the Eid in keeping with a tradition that prompts people to buy new outfits for their children to celebrate the feast. “This year I am not going to be able to take them to City Stars,” he said, a shopping mall on the outskirts of Heliopolis with many ready-to-wear brands. “We will have to shop elsewhere. Things are so expensive and not just clothes and stationary items. Everything is expensive from school fees to food,” he added. But unlike Mohamed Moukhtar, a doctor in his late thirties, Abdel-Aziz is still able to pay the fees of his daughters' school “despite the sudden increase this year.” Moukhtar, who also lives in Heliopolis, a middle and upper middle class neighbourhood, was forced to pull his two sons out of an international school and enrol them in another because of the high fees. “The increases were too high, and then there were also increases in the prices of everything from uniforms to books and bus fares. It was heart-breaking to have to tell them they needed to change schools, but our monthly expenses almost doubled last year even though we were still buying exactly the same things,” Moukhtar said. As he was buying new school uniform for his sons, Moukhtar added that he would have to find himself another job. “I was always opposed to the idea of going to work in the Gulf, but now I don't have the luxury to choose because I don't want our living standards to drop even further. Only God knows if in a couple of years I will be able to keep up if prices continue to increase as it looks as if they will,” he commented. The concern over increasing prices is not just from consumers, but is one that merchants share. In central Cairo at the intersection of Khaiyrat, Ismail Abaza and Noubar Pacha Streets in the Sayeda Zeinab district merchants were complaining about “a state of stagnation”. “People are not buying new clothes and shoes for their children because they have to buy new school uniforms instead,” said Adel, the owner of a store selling inexpensive children's outfits. “Every year during Eid Al-Adha [feast of the sacrifice] I would normally have hired an extra ten assistants to help with the year's biggest season for meat consumption. But this year I only took one. I had to send the rest away disappointed,” said Hassan, a butcher in the district. “I have been working here for the last 15 years. It is a perfect place to have a business, next to a metro station, several ministries and government bodies, and in the centre of a highly populated quarter. But things are just not working for me this year,” said Mahmoud, a fruit-seller. “Let's face it — people are not even buying vegetables and rice and chicken. Fruit is a luxury for many people,” he said. According to Mahmoud, this is “the first year I have ever seen civil servants buying fruit in half kilos. I used to have some people coming to ask for fruit as charity, but never have I seen a civil servant buy just half a kilo of grapes or bananas,” he said. Merchants and shoppers alike expect harder times, and many fear the new value-added tax (VAT) that could make many things more expensive. Abdel-Rahman, a lawyer at a private firm, said it would be impossible to avoid harder times ahead. Having bought some fruit and vegetables from one of the Armed Forces mobile shopping outlets in Ramses Square next to the main Cairo train station, Abdel-Rahman argued that the prices at these outlets were “cheaper than market prices, but they are still expensive”. “They are not cheap, and everything else is getting more and more expensive, not just food but also water and electricity. Now we are expecting a new wave of price hikes,” he commented. Economic reforms: Later this year, the government is scheduled to sign a deal with the International Monetary Fund (IMF) for a loan of around $12 billion that will come in three tranches, one each year. The signing of the loan comes with an austerity package that the government has said has been designed to ensure that it does not hit most Egyptians too hard. “What we are doing is painful, but unavoidable. This is not just about the IMF loan, even if, of course, the IMF does require reforms. It is about saving the economy from a total shut-down,” said a senior official at the Central Bank of Egypt (CBE). According to the official, “without serious economic reforms and given the continued decline of foreign currency revenues, the country's budget deficit could have risen to very unsafe levels, giving rise to a very disturbing scenario.” The itemised bill of the reforms that are coming has never been announced. But most people know from statements by officials, including the head of the government, that reducing subsidies will be inevitable. This will not just affect the prices of water and electricity either, as the case has already been. Instead, officials say subsidies will ultimately be reduced from petrol and from public transport, including the Cairo underground, buses and trains. A source in the office of the prime minister said that “these things will not happen all in one go — this is something the government is very clear about, as it would harm many people already having difficulties.” According to a report issued by the Central Agency for Public Mobilisation and Statistics (CAPMAS) in the summer, the amount of money needed to sustain the basic necessities of life rose to LE482 per month in 2014-2015, while Egypt's wealthiest 10 per cent spent an average of LE1,924 per month on necessities. Officials have not denied these figures, though have they not acknowledged them or the possible negative impacts of the gradual elimination of the subsidies. Instead, Minister of Social Solidarity Ghada Wali has said that her ministry will work to expand the social safety net to cover a larger number of people and that the government will make sure that the subsidies reach those who truly need them. According to the CAMPAS report, food subsidies secured 4.6 per cent of the population from dropping below the poverty line, though another set of figures also showed that 77 per cent of Egypt's wealthiest 10 per cent used subsidy cards in 2015. “It is really hard to say who falls into which category. This is not something you can measure only by statistics. On paper our joint monthly income is above LE10,000, but since we are middle class and want to improve the chances of our children we need to give them a decent education,” Abdel-Aziz said. “With the increasing prices of everything, and no matter how many items we scrap like a nice summer holiday or eating out once a month, it will be very hard for our family to get by, especially if someone falls ill, for example.” The impact of the increasing prices on the middle classes is something that consumers and merchants shopping for the Eid holiday and the back to school season repeatedly refer to as an unmistakable reality. “We used to cater essentially for the upper middle class, and when we used to have our sale around mid-July we used to have to ask our sales people to double their shifts. This was not the case this year, however,” said Makram, store manager of one of the ready-to-wear brands in City Stars. He added that his store had lost its middle-class customers and was now losing some from the upper middle class. “It is easy to observe that if a client comes in with a child carrying a shopping bag from one of the stores that sell children's clothes or toys that she will go to the discounted items and will not buy more than two of them,” he said. He acknowledges that the currency devaluation over the past few months has also led to declining traffic at his store. “Our regular morning summer dress used to cost something like LE500, but this year because of the increase in the price of the dollar it has increased to around LE800,” he said. A further devaluation would mean another increase in prices and fewer clients and less shopping per client in the store. “Already this year we did not get all the items we were planning to show in our stores, and I am not sure about the winter season,” he added. Makram said he was not aware of plans to close some branches. “I know this has happened to other stores, and I know some of the stores at the more expensive end are closing down. It is such a pity, and now we have no jobs to offer unless someone decides they want to quit. We are just hoping we will not have to reduce our operations further,” he said. According to the CAMPAS report, Egypt's unemployment rate fell to 12.5 per cent in the second quarter of 2016, compared to 12.7 per cent in the previous three-month period. The number of unemployed stood at 3.6 million, down 61,000 from a quarter earlier. The size of the workforce rose 2.9 per cent year-on-year to 25 million. The unemployment rate averaged 10.83 per cent from 1993 until 2016, reaching an all-time high of 13.40 per cent in the third quarter of 2013 and a record low of 8.10 per cent in the second quarter of 1999. According to the source in the office of the prime minister, “there is hope that the rate will drop towards the end of the year or by the first quarter of 2017 as we expect an end to the ban on Russian tourists visiting Egypt towards the end of October or the end of November at the latest.” The ban on tourism to Egypt imposed by Russia in the wake of the downing of a Russian plane carrying tourists shortly after taking off from Sharm El-Sheikh Airport dealt a major blow to the tourism industry and forced a full or partial shut-down of many hotels and restaurants in the area. Coming at a time of slow tourism traffic elsewhere in Egypt, it gave sacked workers few opportunities to find other jobs. “It has been an awful year for tourism, not just for workers in hotels but also for all those working in the industry — tour guides, drivers, shop-owners and of course businessmen investing in tourism,” said the same official, adding that “we are hoping that by the middle of next year we will see an increase of 15 per cent to the current flow, and there have already been positive signs.” On 30 August, CAPMAS reported that July had marked the highest tourism numbers since the downing of the Russian plane, with close to 530,000 tourists visiting Egypt. Fingers crossed: “We are keeping our fingers crossed, but we cannot act as if the money is here already as we cannot predict whether the positive expectation of a higher tourism rate will hold,” said Wafaa, a tour guide. “We had this expectation last year as well. We are already depending on our savings, and we will have to continue to cut expenses until the tourists come back. In the meantime, we will continue to be on a very tight budget,” she added. Wafaa said she was not planning a holiday for the Eid with her husband, an engineer in a private company, and three children this year. “The crucial thing for us is to keep them at their international school, and for this we have to make sure we have the money for the tuition and the expected increases,” she explained. “It was already difficult to pay the fees and to get them the uniforms and the rest of the requirements for school. We have got them some new clothes for the Eid, and we will take them out a couple of times for lunch or dinner, but we have no travel plans.” With the higher prices, fewer subsidies, reduced savings, reduced buying power, and decreased economic security, it is easy to anticipate a recession to come. “We are already in a recession,” exclaimed Heba Al-Leithi, a professor of economics at Cairo University. This is the “typical behaviour of a slowing economy — prices go up, income goes down, subsidies are reduced, and spending shrinks.” “People have to worry about essentials, including those employed on decent salaries because of the on-going process of devaluation. They have to worry about education and health bills and basic requirements such as food and clothing,” she said. The trouble “is that the government is opting for easy taxation choices by introducing the value added tax rather than an incremental income tax to avoid a confrontation with the business community that is already hesitant about its investments.” Furthermore, “there have been no serious attempts to control prices. The pound is devalued by around 15 or 20 per cent in six months, and prices go up by 60 to 70 per cent as a result,” she said. “Had the government opted for incremental taxation on the basis of income along with an efficient collection system, traders would have thought twice before doubling their prices to expand profit margins as these would have been subject to taxation,” Al-Leithi argued. With the expected reduction in the subsidies, some members of the middle classes could be pushed downwards to the lower middle classes, she said. She acknowledged the legitimacy of the government's need to reduce the budget deficit and introduce economic reforms. But she insisted that the right way to do this was not just to cut down on the subsidies at a time of a clear economic crunch. “Increasing spending should be an objective for any economy that depends on domestic consumption to a high degree, and reducing the budget deficit should not necessarily be about reducing public spending on basic services like education and healthcare as we have seen in the budget this year despite constitutionally stipulated figures that were only met by technical measures,” she said. “We need an economic vision that should be holistic and tailored to the very delicate situation we are in and not just a predictable round of spending cuts.” Mohamed Gad, head of research at the Egyptian Centre for Economic and Social Rights, an NGO, said there could be grave social consequences if the government falls short of a serious social vision. He said that successful social-security projects like the Takafol and Karama programmes (Solidarity and Dignity) were not “anywhere near enough” to cover the basic needs of the poor, adding that the increases in some pensions recently announced by the government remained far short of covering basic needs, especially in view of poor public education and health services. “We could well be at the threshold of a long period of stagflation,” said Gad, adding that the current rate of inflation stands at 12.8 and that the expectation is that it will hit 16 per cent by the middle of next year. “We are talking about a situation that aggravates the volume and level of poverty, especially with the clear deterioration that is hitting the middle classes,” he said. According to Al-Leithi, in the medium term the situation could also have a negative impact on the quality of Egyptian human capital. “This is not just about social rights, but is also about the chances of employment in Egypt or outside Egypt, and we are already aware of the scepticism that some countries that used to welcome Egyptian professionals are now showing towards graduates from Egyptian universities,” she said. Government officials have been offering positive forecasts, not just about the anticipated resumption of tourism flows, but also about what they say is a new flow of direct foreign investment into Egypt once the country signs the deal with the IMF. This will amount to a vote of confidence in the Egyptian economy, officials say. “I have been hearing promises of better days all my life, ever since I was a girl at school,” said Nevine, a civil servant. She was buying potatoes and tomatoes to cook for lunch for her children. “No meat, no chicken, and no fish. We will have meat for the first day of Eid in two weeks,” she said. Today in her mid-forties and with three children at school, Nevine has given up hoping for better times to come. She is focusing on having enough money to put basic food on the table for her family and make sure “there is something put aside for emergencies” and to pay for private lessons for her kids. “We have been reducing our spending non-stop, holidays seasons included,” Nevine lamented.
