Egypt as the sand castle of Morsi

Mohamed Morsi, as the first democratically elected president of Egypt, assumed office on June 30, 2012. So, this Sunday is his first anniversary, and there will demonstrations in Egypt on the day. His promise was to tackle the problems of Egypt head on in the first 100 days. At the end of his first 100 days, his approval rating was around 78 percent. Now at the end his first year, it has declined to 32 percent. Why this steep decline? I see two reasons here. First, he could not formulate a more inclusive form of government. Yet he should. He should have reached out and started healing the polarization in Egypt. He could not. Second, he just could not start dealing with the sandy and false foundations of the Egyptian economy. No major economic reform project still in sight. IMF agreement still in limbo. Electricity shortages growing for the first time in Egyptian history. All public services are just in shambles. Egypt is still in the forefront of the failed states list. Currently number 34, in the list headed by Somalia. Finland is at the end of the list as number 178, just to give you a reference point. Turkey? Number 86.

First, am I correct in talking about the sandy economic foundations of Egypt? Yes. Just look at the budgetary situation of the country. In Barcelona, this week a colleague from Egypt has been outlining the fiscal situation. “One quarter of the Egyptian budget goes to subsidies. A second quarter is for the salaries of around 6 million civil servants. Third goes to interest payments on government debt. Fourth is spent on all the services to run the country. The last quarter is essentially non-existent as that is equal to the budget deficit itself. In order to run the country, you need more debt. It is utterly unsustainable.” He noted. No wonder the public services are in shambles. This fiscal situation looks sandy and shaky to me.

But why no measure to take control yet? Does that mean that Egyptians do not know what to do? No. Take for example the case of the subsidies. Everybody in Egypt knows that theirs is a perverse system of subsidies. Twenty-five percent of Egyptian exports are cement and fertilizer. Both are energy intensive products, as everybody knows. So the Egyptian government is subsidizing energy for the Egyptian poor but rich Northern Mediterraneans are buying cheap cement and fertilizer from Egypt. So the Egyptian government is subsidizing rich Europeans in effect. Egyptian poor subsidizing the rich North. Does that look normal to you? There are myriad of reports to change this perverse system with a more targeted one. Why is there no implementation? Any targeted alternative requires what Egypt has been lacking most, that is administrative capacity. That is why no one is walking the talk.

Complacency is bad but it still persists? Why? Well this reminds me the 1919 introductory of the late Keynes in the Economic Consequences of Peace. Just add Egypt to the dotted areas. “The power to become habituated to its surroundings is a marked characteristic of the mankind. Very few of us realize, with conviction, the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which …. has lived for the last half a century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent and to be depended on, and we lay our plans accordingly. On this sandy and false foundation, we scheme for social improvement and dress our political platforms, pursue our animosities, and particular ambitions, and feel ourselves with enough margin at hand to foster, not assuage, civil conflict in ...”

Looks like adults having fun inside a large sand castle imagining that it is not of sand. It is of sand. In Barcelona this week, I was asked how Turkey had the political will to deal with her structural economic problems. “It was always after a crisis,” I told them.