Sherine Abdel-Razek reviews a book that suggests a way forward from the crossroads at which Egypt stands today Since the onset of the revolution, the question of which direction the Egyptian economy will follow now remains to be answered, especially considering that this year has brought Egyptians the promise of greater social justice. Over the past few months, court rulings and government annulments of privatisation deals, as well as the imposition of new taxes on the wealthy have, altogether, frightened investors. In his recently published book An Economic Programme for Post-Revolution Egypt, director of the economic studies unit at Al Ahram Center for Political and Strategic Studies expert in economics Ahmed El-Naggar describes his vision of a mixed economy, where the private sector still plays an important role, but the state goes back to being the provider of key basic services. El-Naggar's book criticises the shrinking of state spending on education and health during the last year of former president Hosni Mubarak's regime. The author shows that the 2011-2012 budget had allocated the equivalent of 4.6 per cent of GDP to education, as compared to an international average of 5.3 per cent and 5.2 per cent in other countries in the Middle East and North Africa. Health did not fare much better, as the 1.5 per cent of GDP allocated to healthcare was less than a third of the world's average, and less than half of Jordan and Lebanon's. El-Naggar believes the government should play a different role. If it chooses to minimise spending on various sectors sectors, it should prepare the economy to be investor-friendly so that small, medium and large projects find incentives to invest. The government should also rearrange its priorities so that it directs more investment towards the industrial and agriculture sectors. The book points out that the investment rate -- in terms of percentage of GDP -- had declined over recent years to reach 15.4 per cent in 2010/2011 compared to 18.9, 19.3, and 22.4 per cent in the previous three years respectively. El-Naggar suggests that the financing for such huge investments come through initial public offerings (IPOs), in addition to minimal government participation. The book's core deals with the budget deficit, as most of the plans revolve more or less on increasing revenues, provided that is not done at the expense of the country's least affluent. Levying higher taxes on the wealthy, whether on companies or individuals, is a policy El-Naggar supports. This is because, in his view, big companies and wealthy taxpayers enjoy more of the services that the tax revenues finance than small companies and individuals. El-Naggar explains that in Egypt, despite inflationary pressures since 2007, the ceiling of the annual income exempted from taxes remained at LE9,000, though it should now reach LE18,000 were inflation factored in. Change in tax brackets to reflect change in inflation is another point. El-Naggar said that in the United States, for example, the income that is subjected to the highest tax rate increased from $297,000 in 2000 to $326,000 in 2006 and to $373,000 in 2009. While the 2011/2012 budget brought the tax rate imposed on enterprises with incomes exceeding LE10 million up, El-Naggar considers this too low as the highest rate imposed worldwide ranges between 29 per cent in Germany and up to 62 per cent in the Netherlands. And while Prime Minister Essam Sharaf's government shelved a plan to impose taxes on profits from stock market transactions, El-Naggar's book pinpoints that imposing a 0.5 per cent tax would add LE5 billion to government revenues per year, while this could also be a way to tighten speculation and limit the outflow of foreign portfolio investments. Restructuring the subsidies system is high on El-Naggar's priorities. First El-Naggar points out that the former government continuously complained about the burden posed by the subsidies system. Subsidies cost about 10 per cent of GDP. "This it is not only low when compared to other countries, but the bulk of the subsidies are directed towards the wealthy," El-Naggar laments. While oil products subsidies amount to LE95.5 billion in this year's budget, and electricity subsidies amount to LE5 billion, the majority of these figures are used by energy-intensive industries making products such as steel, cement fertilisers and aluminium. Most of these companies sell their final products at international prices, posting gigantic profits. To prove his point El-Naggar explains that, given that the cost of cement production in Egypt ranges from LE180 to LE220, its price should be around LE280. In reality, however, it is being sold at around LE580. For this reason, he suggests encouraging cement imports as a good way to put a ceiling on cement company profits, given that these companies are mainly controlled by foreign enterprises. El-Naggar also mentions another example, for a fertiliser company whose financial statements show a net income in 2007/2008 of LE990 million, while its capital is LE688 million. That means its revenues are almost 144 per cent of its capital. This, the author explains, is because it takes subsidised gas at one quarter of its international price and sells the fertiliser at international prices. As for housing subsidies, El-Naggar stresses that the owners of real estate companies pocket the funds while the poor hardly benefit. He explains that real estate companies buy a metre at LE10 without utilities or LE70 with utilities, in addition to getting LE15,000 as an additional government subsidy. With this in mind and with a reasonable profit margin, a 63-metre flat should be sold at LE45,000, while companies will sell it at prices ranging between LE103,000 and LE140,000. What is ironic, according to El-Naggar, is that no state body is entitled to put a ceiling on these companies' profits. As for food commodities, on which subsidies declined this year despite the fact that they target those with a limited income, El-Naggar noted that a way to increase the efficiency of subsidies on this item would be for the government to import the goods itself, rather than depend on contractors to do so and suffer the high prices that go with that arrangement. This system would only work if purchasing committees are put under the scrutiny of members of parliament, and if changes in prices and terms of payments are very transparent. El-Naggar's book includes an annex on wages which underscores the fact that the problem with wages is not only the very low level of the minimum wages but the way in which civil servants' salaries are calculated. These very low salaries are supplemented by doses of bonuses that sometimes make the income of a certain employee 30 times the official salary of his peer in the same managerial rank in another public entity. El-Naggar advocates for the meeting of demands to raise the minimum wage per hour to LE6, which would bring each employee working an eight-hour day to LE1,200 per month. Further, the author points out that the purchasing power such an income would bring an employee is still lower than the minimum wage in 1952. Further, El-Naggar calls for the amendment of gas export contracts. If Egypt amends the prices of gas in its contracts with Israel and Spain to reach fair international levels, we would add LE15 billion to the budget. This money is instead subsidising the two countries with which Egypt is trading, where the average income per capita in the former is 12.5 times that in Egypt, while citizens in the latter have an income that is 16 times the Egyptians'. Moving to the issue of unemployment, El-Naggar compares figures from the Bank of Egypt and the World Development Report for year 2010 and shows that the real unemployment levels in the country exceed the official 9.4 per cent to reach 12.4 per cent. In addition to not having the exact number of the unemployed, the job market in general has many distortions that should be dealt with. According to a study El-Naggar quotes, seasonal labourers are considered a part of the workforce, though 53 per cent of them have neither officially contracts nor any kind of job insurance. The creation of national incubators for small projects would help provide new job opportunities. Such incubators help the owners throughout their projects' lifetimes, starting with choosing the field of the work that would help cover local needs, up to helping the project in terms of securing a means of finance. El-Naggar also suggests the establishment of a fund to combat poverty and unemployment in the Arab region. The source of financing for this fund can be $1 levy on each exported oil barrel, amounting to up to $7 billion annually. The author also calls for an increase in funds allocated to training, which has been allocated LE1 billion in this year's budget. El-Naggar also points out that training someone without helping him or her actually find a job is useless.
