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Subsidising the rich?
Published in Al-Ahram Weekly on 19 - 05 - 2011

Restructuring subsidies to increase their efficiency is needed now more than ever, Mona El-Fiqi reports
The countdown to the government's submitting the upcoming fiscal year's budget usually witnesses a debate about the size and beneficiaries of the subsidies item of the budget. The subsidies, especially the part related to food, is a means by which millions of poor Egyptians had access to different commodities at reasonable prices during the last four decades. However, it has always raised reservations not only because it eats out a bulk of the government resources, but also for the lack of efficiency in the system which provides even the affluent with subsidised commodities.
Subsidies counted for 25 per cent of total government expenditures in the current fiscal year's budget and while next year's figure is yet unreleased, preliminary estimates given by Minister of Finance Samir Radwan put it around LE197.5 million compared to LE124.6 million in 2010-2011.
Ahmed Sakr, professor of management at Alexandria University said that while the subsidy system in theory aims at equitable distribution of resources among Egyptians, the application has two main problems; the first is related to the beneficiaries of the system, while the second is the guarantee that these allocations will reach the low income brackets. "Redefining the beneficiaries of the programme would make it more efficient without increasing costs," Sakr said.
With a relatively high percentage of food subsidies going to well-off individuals, there is a problem of mismanagement of resources due to the fact that the government did not learn from the lessons which adopting this system for 30 years has resulted in, according to Sakr.
The weak supervision and control roles of government concerned bodies due to notable corruption, as Sakr sees it, made it hard to prevent the misuse of subsidised products.
In a televised interview last week, Gouda Abdel-Khalek, minister of solidarity and social justice, highlighted one of the cases of wasting the susbsidies money. The flour used in baladi bread and given to bakeries at subsidised prices is being sold by owners of these bakeries in the black market at almost double the price. The price of subsidised flour is LE160 per tonne compared to LE300 per tonne in the market, according to Abdel-Khalek.
In addition to imposing severe penalties on such violators, Sakr believes that civil society can play a role with the assistance of youth groups to secure efficient and corruption-free implementation of the programme.
Energy subsidies stir even a more heated debate. These are subsidies given to the Egyptian General Petroleum Corporation to keep prices of energy products below the international prices (the difference between price paid to the foreign partner and price paid by consumers) to either households, businesses or the government sector. Subsidies on energy products include subsidies allocated to gasoline (80- and 90- octane), kerosene, diesel, fuel oil and natural gas.
Anwar El-Naqeeb, assistant professor of economics at Al-Sadat Academy for Administrative Sciences, explained that one of the real problems in subsidising energy is the unreliability of figures announced by the previous government.
Energy subsidies in 2010-2011 amounted to LE67.6 billion. The government did not announce how it calculated the energy price before estimating the subsidies, according to El-Naqeeb.
Another example of waste is butane cylinders. Subsidising the canisters is an essential part of the energy subsidies since out of Egypt's 15 million households, only two million have access to piped natural gas. The butane subsidy cost the government approximately LE7.7 billion in 2009/2010.
According to Abdel-Khalek, each canister costs the government LE40 but it is sold to the public at LE2.5. But, in most of the cases, distributors sell those canisters at LE4.5 each. The price might go as high as LE20 per cylinder in winter as distributors use the increase in demand to pile profits.
Moreover, some of those canisters are being sold to hotels, restaurants and farms instead of households, according to Abdel-Khalek. This subsidy is available to all Egyptians. He said that, for example, 750 butane cylinders were found in a factory during a recent inspection campaign.
As for food subsidies, it includes subsidised flour for producing baladi bread and the ration cards which offer 62 million Egyptians with a monthly quota of basic foodstuff including rice, sugar, edible oil and tea for a maximum of four persons registered on each card. The total cost of food subsidies in 2010/2011 was LE13.5 billion.
While soaring global prices resulted in a 17 per cent increase in the prices of the majority of food items, the price of baladi bread remained unchanged. "Thanks to the government's subsidy system, the bread price is where it is. We could not afford otherwise because bread is an essential food item for my family," said Amani Ali, a housewife.
In an attempt to reduce the waste of food subsidies and to provide a better service, the government started a few years ago to move from paper ration cards that have been used by Egyptians for decades to smart cards or "family cards". Smart cards are now used by seven million families in 20 governorates. Following the 2009 expansion of the food subsidy programme to cover Egyptians born between 1988 and 2005, 80 per cent of Egypt's population is eligible for subsidised food products.


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