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Malthus on the Nile
Let Them Eat Falafel: Austerity and Corruption in Egypt

Once the breadbasket of the ancient world, Egypt has for decades been the world’s largest importer of grain—about 20 million tons per year. But Egypt’s post-2011 fiscal crisis, in which the country no longer has the foreign currency reserves to purchase this wheat on the international market, has left it entirely dependent on cash injections from wealthy Gulf countries to guarantee its food supply. With oil below $50, Egypt’s Gulf piggy bank is running dry.

That leaves the IMF, but an IMF loan means both literal and figurative belt tightening, as Reuters reports:

Squeezed by economic and political turmoil since the 2011 uprising that toppled Hosni Mubarak, Egyptians are preparing for a new era of austerity. The reforms are part of a programme to cut the budget deficit and rebalance currency markets promised to the International Monetary Fund (IMF) to secure $12 billion of lending over three years.

But political opposition to measures involving subsidy cuts, devaluation and new taxes while tens of millions rely on state-subsidised food, make the programme ambitious. The cost of failure, say economists, is high. The budget deficit is near 10 percent of GDP. Inflation is 14 percent. A shortage of foreign currency has hit imports.

Foreign investors are unable to repatriate profit and some are shutting shop, hit by capital and import controls imposed over the last 18 months. Businesses are unable to secure enough foreign currency to import components or pay a premium above 40 percent to obtain dollars on the black market. They talk of survival not growth.

While the Egyptian government has danced around the issue of directly cutting its food subsidies and has mooted increasing welfare payments to offset any cuts, changes to how that subsidy is distributed have had the same effect. Bread and wheat prices are up 30% from last year, rice 60%, vegetable oil 50%; lentils are up 20% since February.

As if rising food prices and the prospect of subsidy cuts were not already a fraught issue (the grain subsidy has been the backbone of the Egyptian social contract since the 40s, reaching boondoggle proportions under Nasser) the ministry responsible for the national food supply is embroiled in a massive corruption scandal. Millions of tons of grain supposedly in storage may be a fictitious accounting trick to game the subsidy system. While that would have grave implications for the Egyptian food supply and economy in and of itself, the scale of the ministry’s incompetence takes on absurd echoes of ancien regime decadence under accusations that the Minister of Supply has spent $800,000 in the past year to maintain a suite at the Cairo Hilton at public expense.

The systemic problems of Egypt, as a state, are vast: a broken economy, a massive trade deficit, a bloated and corrupt bureaucracy, unsustainable population growth, a kleptocratic elite, limited water and land resources, and a fraught political system that’s overthrown two governments in five years. Taken individually, these problems would be harrowing. That they are deeply interconnected and tied to the most basic requirement of a functioning society—avoiding starvation—suggest that Egypt may be on a slow-motion path to being a failed state akin to economic basket cases like Zimbabwe, only on a much larger scale and in the heart of the world’s most volatile region. And even Zimbabwe can usually feed itself.

In other words, this is not simply a question of introducing fiscal austerity measures, reviving tourism, cutting a bloated bureaucracy, eliminating corruption and introducing free-market enterprise—though those would all be good things. With a population of 91 million people and 2.5% population growth, Egypt has an extra million mouths to feed every six months. It does not have a new Nile Valley, or natural resources to sell in exchange for food. IMF bankers seem to be reading the Washington Consensus playbook for dealing with Egypt. They should start reading Malthus.

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  • Fat_Man

    Dear Copy Editor: I am now on a crusade:
    “As if rising food prices and the prospect of subsidy cuts were not already a fraught issue”
    Fraught with what? Fraught, which means full, or laden, is a verb that takes an indirect object. What is rising food prices full of? Anger? Difficulty? obstacles? something else?

  • Proud Skeptic

    I can imagine that the Egyptian tourism industry is in the dumper right now. My wife and I visited Egypt in the early 1990’s and it was awe inspiring. We would love to go back but feel that this section of the world should be avoided due to potential dangers. We may be right. We may be wrong. But travelling is a thing one does based in part on a perception of safety in the place you are travelling to. That is lost now.

    Egypt’s store of ancient temples, art and relics is one of its biggest economic resources. Take it away and the economy is destined to tank and stay there.

  • solstice

    “The systemic problems of Egypt, as a state, are vast: a
    broken economy, a massive trade deficit, a bloated and corrupt
    bureaucracy, unsustainable population growth, a kleptocratic elite,
    limited water and land resources, and a fraught political system that’s
    overthrown two governments in five years.”

    Additional problems include unconscionable levels of religious lunacy (from both Muslims and Christians but primarily Muslims), high rates of illiteracy, FGM, and cousin marriage, the horrific treatment of women, and a culture of wild conspiracy theories that blames all problems on “the other” (Jews, the West, Shiites etc.).

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