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Egypt’s crisis will only aggravate

By Missing Peace

The crisis in Egypt will only aggravate warn experts. Prices will go up drastically and foreign investment will go down even further.

This will cause a social explosion and could even lead to civil war. To make things worse a locust plague in Upper Egypt will almost certainly destroy a significant part of the local crops.

Last Friday Egypt witnessed continuing mass protests organized by 38 opposition movements and parties.

The protesters called for the downfall of the Muslim Brotherhood regime and demanded that  President Mohammed Morsi
fulfill the goals of the revolt that brought him to power.

Read more about the Egyptian economic crisis in this article by  Egypt Independent
Alexandre Goudineau Egypt Independent  Sun, 10/02/2013 – 21:30

http://www.egyptindependent.com/news/near-future-experts-see-wave-drastic-price-increases

As the country’s economic crisis continues to administer its blistering
effects on businesses and consumers, industry insiders and experts are
saying the country still has yet to bear the brunt of an economic downturn
that has no real relief in sight.

If the government continues down its current path, and hopes for loans from
international foreign institutions remain unattainable, such as Egypt’s
US$4.8 billion loan from the International Monetary Fund, experts have
repeatedly warned that the situation will become drastically worse. When it
does, they predict the real effect of the crisis will come in a tsunami of
price increases that could spark social unrest.

A net importer of food and consumer goods, Egypt relies heavily on foreign
supplies imports to feed its growing population.

But retail and import sources are warning that the ongoing devaluation of
the pound will lead to large price raises in the immediate future,
especially those of imported products. These price raises, experts say, will
shock the Egyptian economy and drive it into further crisis.

A source from a leading mass retailer told Egypt Independent that the
company had already started to feel the impact on its supply prices. The
source predicted that consumers will see an up to 20 percent price increase
on imported products.

Local products are likely to have their prices increase as well, but to a
lesser extent than the imported ones.

Egyptian products will directly be impacted, as most of them contain
imported components such as raw materials, packaging and additives, experts
say.

And this general surge in prices, they say, will put inflationary pressure
on all production costs.

Organized shortages

In addition, pound’s drop could be used as a pretext for importers to
increase their profit margin.

“You have cartels in Egypt who control the level of prices,” said Samer
Atallah, an economy professor at the American University of Cairo. “They
take benefit from the fluctuation of the pound and organize shortages to
increase their prices.”

Atallah said who controls the cartels is often unclear, but their
maneuvering is evidenced in unexplained shortages and price increases.

The source in the retail sector confirmed that he expected the price surge
to be twice that, which would correspond to the pound’s loss in value.

The pound has lost about 10 percent of its value against the dollar in 2013,
and many experts expect the exchange rate to reach LE7 to the dollar soon.

Atallah also worries that the tax plan linked to the IMF deal could further
worsen the inflation level. This tax plan includes necessity products, such
as mobile calls and widely used goods, such as cigarettes and soft drinks.

These taxes, Atallah said, will impact all the classes of the Egyptian
society, contrary to the government’s declared intention of the tax burden
falling on the rich.

President Mohamed Morsy postponed the tax plan in December days before its
implementation, saying that the government will conduct a national dialogue
around the laws before going further.

This decision in turn postponed the conclusion of the IMF loan. The
postponement of the IMF loan has led to a drop in investors’ confidence and
has put further pressure on the pound.

All sectors will be impacted by the price hike. Fresh produce, such as
fruits and vegetables, will be the first affected. The retail source said
his company had already increased their prices for fresh produce.

Other sectors will be impacted more gradually as retailers have to renew
their stocks less regularly.

The source added that labor movements in Mahalla, in Port Said or in Suez
could lead to further shortages if they continue into the near future.

A pharmacist speaking under condition of anonymity told Egypt Independent he
was also expecting serious price increases on imported medicines very soon.

He expected the increase to be between 10 percent and 20 percent. He didn’t
foresee any out-of-the-ordinary shortages.

“Subsidized medicines always have availability issues anyway,” he said.

Bomb yet to drop

Subsidized food products, upon which the country’s lower classes rely
heavily, should not be affected by the price rise.

The General Authority for Commodities and Supplies recently announced that
it would not experience any financial difficulties in providing the Egyptian
population with subsidized products in the near future.

The authority said that strategic state wheat stocks are expected to last
until 22 July.

The Investment Ministry has also indicated that the state would bear the
additional cost generated by the devaluation of the pound.

Experts have stressed the importance of the availability of the subsidized
food products to prevent increased social unrest.

A report of the International Food Policy Research Institute tried to
demonstrate Arab countries were particularly sensitive to international food
prices variations and food insecurity was the foremost determinant of social
unrest in the last 50 years.

The 1977 bread riots further support his claim. Bread was as well one of the
main demands of the 2011 revolution and the recent protests.

According to the FAO, carbohydrates represent about 75 percent of the
Egyptian average diet. Cereal and roots represent nearly two-thirds of the
diet, and wheat alone makes up one-third.

Reports place Egyptians as the world’s biggest per capita bread consumers,
and Egypt as the world’s biggest wheat importer.

“The main problem of the government is to provide wheat and bread. It’s a
vital issue,” Atallah said.

The government has so far managed to avoid cutting into food subsidies.
However, the general increase in prices will certainly increase the
consumption of subsidized products and make the subsidy burden heavier for
the state.

According to the president’s office, bread subsidies alone represent LE16
billion in the 2012/13 state budget.

Social explosion

However, even barring subsidized goods, the price hike will put most
vulnerable families in an even more difficult situation. And the current
economic crisis has already taken a heavy toll on these households.

The World Food Program carries out surveys three times a year to assess the
poorest households’ income, diet and strategies of consumption.

Its last survey, from September, indicated that 86 percent of vulnerable
households have insufficient income to cover monthly needs. That is up from
74 percent in just June.

Of these vulnerable households, 62 percent of spending goes to food,
compared with 40 percent for the average Egyptian family.

To deal with their decline in purchase power, these families have resorted
to multiple strategies: 28 percent buy cheaper products, 28 percent borrow
money and 14.5 percent eat less.

But it remains unclear how the government will be able to weather this price
surge, given its very limited margins in budget and foreign reserves.

“The [Central Bank of Egypt] announced the implementation of a monetary
policy that would limit inflation through a raise of its interest rates,”
said Atallah.

This policy, he said, has little chance at success. Rather, he said it will
just impede credit and further diminish consumption while inflation stems
from imports and the supply-side of the economy.

“The government should focus its subsidies on basic food products by
directly providing them at low prices,” said Amr Adly, former economic and
social justice director at the Egyptian Initiative for Personal Rights, who
is now doing research at Stanford University in the US.

Adly said this measure would merely help the current regime survive its
term.

“This is, of course, to avoid a social explosion,” he added.