Officials with the Egyptian government say there is an urgent need for greater corporate responsibility.
Egyptian officials pleading for greater corporate responsibility
CAIRO // Officials with the Egyptian government say there is an urgent need for greater corporate responsibility as the country grapples with its highest inflation rates in at least a decade. "To have sustainable development, there must be a fair distribution of the money coming into the country," said Ashraf Gamal, a senior adviser to the Egyptian minister of investment. "Everybody is suffering now because of high inflation rates, and so it is really necessary that businessmen take action and help those in need reap the fruits of Egypt's successes."
Egypt's inflation rate rose to 19.7 per cent in May, the highest since the government began regularly releasing records to the public in 1998. Official statistics show that food and beverage prices rose by 27 per cent in the year ended in May. In the same period, the price of transportation went up 20.1 per cent, education by 37.7 per cent, and health care by 12.1 per cent. Last week, the Egyptian Central Bank increased its benchmark interest rate to a three-year high, adding that it will "not hesitate" to raise it again as it struggles to keep up with accelerating inflation rates. Policy makers raised the overnight deposit rate to 10.5 per cent and the overnight lending rate to 12.5 per cent, officials with the Central Bank said. It was the fourth time this year that the Cairo-based bank has increased borrowing costs.
"Raising the interest rate isn't the only solution, but it is a solution to reduce the amount of money circulating the market," Dr Gamal said. "People have more money now. This is causing an increase in consumption." In May, the government passed a controversial bill proposed by the president, Hosni Mubarak, that paved the way for a 50 per cent rise in gasoline prices, as well as a 10 per cent increase on cigarettes. The move is in an effort to raise some US$3 billion (Dh11bn) needed to cover a 30 per cent proposed salary increase for government employees.
The fiscal complexities of the Arab world's most populous country are the subject of global debate. Take the arrival of the American coffee giant, Starbucks, which made its debut almost two years ago. Fourteen branches have opened in the past 20 months, with seven stores in Cairo, two in Alexandria and five in Sharm el Sheikh, all selling a cup of coffee for the equivalent of $4. All this is despite the fact that an unprecedented 44 per cent of Egypt's 80 million residents live on less than $2 a day, the UN reports.
"You have all of these Western brands coming into the market now, whether you're talking about Starbucks, or car brands like Mercedes and BMW," noted Madgi Sobhi, an economist with the Al Ahram Centre for Political and Strategic Studies, a Cairo-based thinktank. "While it is great for business, it has undeniably exacerbated the class gap in this society, which was already significant." Many are concerned that Egypt's recent efforts to urbanise Cairo's outlying areas may come at a time when agricultural land has never been in more demand. Egypt is the fourth-largest exporter of rice, set to produce 4.6 million metric tons this year. A total of 3.2 million metric tons were estimated for local consumption, while 1.4 million were available for exports.
In an effort to preserve local supplies, the government implemented a ban on rice exports, which officials say will last until April next year. This has sparked concerns for countries like those in the GCC, which import almost all of their food. Earlier this year, Egypt, like many countries worldwide, was the scene of violent social unrest over rising food prices. A longtime staple of life in Egypt has been food subsidies, with state subsidies for basic food products estimated at more than 21.5bn Egyptian pounds (Dh15.1bn), compared to 10bn pounds last year, an increase of 115 per cent, the ministry of finance reports. In an effort to cope with the escalating economic crisis, the government has cancelled tariffs on items such as cooking oil and dairy products. It is also taking steps to expand its cultivation of wheat and corn.
"Subsidies in Egypt aren't the answer, they are a way to calm the masses," said Mary Nicola, an economist with Standard Chartered Bank. "The government is really feeling the burden of this growing problem." Egypt is the world's largest importer of wheat, with the government spending some $850m on bread subsidies. The total bill for subsidies is expected to reach $2.67bn. Unlike wealthier countries, where food makes up a smaller portion of household spending, food represents 40 per cent of Egypt's Consumer Price Index (CPI).
The latest Food and Agriculture Organisation (FAO) cereal index showed an alarming 92 per cent year-on-year increase in April, reflected in the rapid rise of local bread and grain prices, which jumped 27 per cent in February alone. Egypt imports about 50 per cent of its wheat and 60 per cent of its total food supply. "The problem with Egypt is that food prices are rising, like in most nations around the world, but then you have this huge population which is really [exacerbating] the problem," said Ms Nicola. "And it's not only food prices, but fuel prices are also getting more expensive, and it is all adding more and more pressure on the Egyptian government to find solutions."
Last month, Egypt's leading Islamic institution, Al Azhar, issued a fatwa, or religious edict, saying that proceeds from the country's oil and gas sector should go to the people, adding more pressure for the government. email@example.com