Saturday, May 10, 2008

Fueling us

Around four months ago I was on a bus going from Dokki to the Mohandiseen end of Sudan Street. The bus was one of the privately-owned, medium-sized (i.e. not a microbus and not a big bus) vehicles which shuttle people around Cairo. That it was privately-owned is relevant here because of the fracas which developed when a woman got on insisted that she would only pay 25 piastres for her trip.

As far as I can tell, there is a degree of negotiation involved in the setting of fares on this buses which is absent from state-run bus services (the green buses of an identical size to the vehicle involved in this scenario charged a fixed fare of 1.25 LE for a ticket two weeks ago. This has no doubt changed after the fuel price increases. In contrast, privately-run buses and microbuses stagger fares according to the length of the passenger’s journey.) Flustered, and laden with bags, the woman got on and sent a 25 piastre note to the taabi3, the fare-collector, who in this case also happened to be the driver’s 12 or 13 year-old son.

The taabi3 - who was possibly the only endearing, non-surly, pubescent teenager in the world – politely told the woman that the fare was 50 piastres, prompting the woman to set him straight, in no uncertain terms. Baba, he said to his father, the woman says it’s only 25 piastres to Boula2. At this point the driver got involved via the medium of the inclined mirror above the windscreen which runs the width of the bus and which allows drivers to simultaneously drive, admonish passengers, talk to their taabi3 and ogle girls’ bottoms .

A noisy, tense discussion ensued between the driver and the woman, conducted through the mirror. The driver’s son, who clearly idolised his father, followed attentively, his eyes darting back and forth between the woman and his father as he chewed his fingernails. The woman - who found support in other passengers - would not be moved, and the driver eventually conceded defeat. I remembered the times as a child I had witnessed my own father involved in tests of will and thought how terrible it must have been for the kid to watch his father suffer such a public humiliation.

Interestingly, a woman got on a few minutes later with two kids in tow, one of whom had a birth defect in his hand and was unable to form words, communicating in sounds intelligible only to his mother. The family seemed to be friends with the driver, who resolutely refused to accept the woman’s attempts to pay their fares. The boy stood at the front of the bus behind the driver, smiling and fascinated by the view out of the windscreen, periodically calling out a sound to which his mother responded from the back of the bus aywa ya 7abiby, ana hena [yes darling, I’m here]. He made sounds at the other passengers, too, and at the driver, who smiled and laughed with him before helping him into the seat next to him where he pointed at things excitedly.

This is a long-winded illustration of what 25 piastres means, and why recent increases in the price of solaar (the fuel used to fill up buses) which have translated into a 25 piastre increase in the price of fares are such bad news. A seminar I went to yesterday said that the increase will add up to an extra 15 LE per month (0.25 x 2 x 7 x 4) on the transport costs of regular microbus users. Probably a conservative estimate, given that many commuters use more than two microbuses a day.

While my ability to comment on the sagacity of the price increases is to some extent compromised by an incomplete understanding of economics, I think even a moron could tell you that:

1. To increase the price of a transport fuel will cause the price of everything to increase. This is disastrous in the context of already high inflation.

2. To raise public sector wages by 30% one day and then two days later wipe out the notional benefits of this wage increase with a package of price-increase measures is at best contradictory, at worst insulting. The government claims that it has had to raise revenue in this way to cover the 30% wage increase. This is either duplicitous or stupid or both. An economist in the seminar yesterday suggested that it was intended to send the message, ‘look what happens if we raise wages.’

3. The notional 7 percent growth of the economy brought about by neo-liberal economic policies has not translated into better standards of living for all. The World Bank estimates that 23% of Egyptians live below the poverty line.

4. The government individuals who made this decision don’t know the meaning of 25 piastres. Other than when they hand a 25 piastre note to the child cleaning their windscreen at a traffic light, possibly.

I spoke to an investment economist the other day and he was telling me about how Egypt’s economic policy is primarily focused on attracting foreign direct investment into the country. Now proponents of FDI champion it because, they say, it’s a cheap way of bringing industrial expertise and infrastructure into the country and raising revenue i.e. the foreign company builds a factory using local material and then employs, trains and passes on skills to the local workforce. Furthermore, they argue, unlike other forms of investment it’s less easy for the foreign investors to pack up and bugger off at the first signs of economic or other forms of instability in the host country.

Here comes the however.

However, sharing skills with the developing world is never the motivation of a multinational which sets up shop abroad, as is self-evident. It is seeking low production costs, cheap labour and weak or non-existent labour regulations which allow it to suck its workers dry without having to worry about troublesome health insurance payments or toilet breaks or severance remuneration or workers’ need to rest or earn enough to send their children to hospital. Unsurprisingly, it is usually countries with repressive political regimes which attract multinational investors.

Industrial zones in Egypt such as the QIZ areas are highly non-unionised: I’ve heard that there is not a single workers’ union in the 6th October industrial zone – can anyone confirm this? A compliant workforce is all part of the game plan of course, and it is unlikely that strong labour regulations will be put in force to protect the ever growing numbers who will join the private sector as Egypt continues to sell off its public sector.

It will be interesting to see how the Egyptian labour movement responds to this new threat and how it changes the dynamics of employer – syndicate negotiations. (Syndicates are all members of the state-controlled Federation of Egyptian Trade Unions).

I asked the economist why the allegedly growing economy had not translated into a better standard of living for Egyptians whose economic suffering is increasing. He was phlegmatic, and pointed to the depreciation of the pound, the international wheat crisis and the wave of inflation and said that Egyptians wouldn’t feel the benefit of Egypt’s new economic policies immediately.

It’s become trendy in recent years to talk about ‘responsible, ethical capitalism’, Adherents of this theory suggest that capitalism is capable of being a force for good, capable of changing people’s lives. The problem is that even before we get to the economic, mathematic calculation reasons why this is mostly stuff and nonsense, we have to acknowledge that human beings and their troublesome profit-reducing needs don’t even enter into the capitalism equation. The evidence of this is currently being felt in microbuses across Egypt.


our man in morocco said...

I agree - the price increases on the heels of the wage increase (for the civil service at least) made no sense, and is clearly punitive.

I had a surreal experience just yesterday, in this regard. I took a short taxi ride, and the driver, unsolicited, announced to me that Mubarak was "mish kwayyis" and that he and Egypt had had it up to here (pointing to the bottom of his chin) with the regime.

In two years, I've only ever heard such strong criticism being directed at US President Bush - never at Mubarak. I've found that, in general, as a foreigner, Egyptians are loathe to criticize any aspect of Egypt in front of me, even the government. Personally, I found this a stronger indication of political storm clouds brewing than the events of 6 April.

Obviously the taxi driver was getting hit with the fuel and cigarette price increases, but not at all benefiting from the wage increases of government workers, plus the doubling of food prices and such in the last couple of years. So I don't begrudge him his righteous anger - far from it. I'm just so accustomed to Egyptians' political passivity that I found his remarks so, uh, remarkable.

Keep up the good work - I saw your name on two (!) stories on the front page, above the fold, the other day. Don't burn yourself out, though, tough guy.

Memz said...


Nice new theme for your blog.

Any economist worth half his dime, will tell you that this the policies that the IMG/WBG are promoting and countries like Egypt are adopting are deep structural changes in the economy. These changes must be accompanied with changes in the culture (less Egyptians case the expectation of Entitlement) and political structure.

Even when all three changes happen it takes between 10-15 years for the full benefit of these changes to be felt across the whole economy. The best estimate for Egypt is that we have been 3-6 years in the process. So its still at least 10 more years of this.

As for the inflation problem, having small change in heavy circulation (1pt, 5pt, 10, pt, 25pt) would reduce inflation. As really microbus drivers would raise fairs by 1pt-5pt; (a closer figure to the increase of cost to drivers)

Anonymous said...

I think that extra 15 LE per month that you quoted is a pretty conservative estimate - plus when you take into account all of the members of a family that need to commute to work or school, that's really going to add up. I can't believe that a ride on the minibus from one end of Tahrir street to the other end in Dokki now costs .50 LE! I hope some researchers out there somewhere are measuring these effects on working families. Real empirical data is needed to study the effects of these increases, not just guestimates and approximations.

Memz - I've always thought that about the small change thing! I wonder why there isn't more small change in circulation.

Memz said...

small change is still of legal tender. I was reading the other day that currency as small as 0.1 PT and 1PT are still legal tender. But they are not in circulation as they have no value and the public rejected them

Forsoothsayer said...

as someone who is often involved in the selling off of the public sector and various forms of FDI, i can tell you that are there are strong labour regulations currently in force. or at least, quite as strong as in other countries. for example, companies with capital of over l.e. 250,000 are obligated to share profits with their employees; whenever profits are distributed to shareholders 10% must be set aside for employees, with a cap of the total annual salaries of the employees. the only problem with this is the low wages. egypt's minimum wage is something ridiculous like l.e. 50 a month or something, and that is what attracts investors. we need to raise minimum wage.
as for unions: they are indeed the best way to secure benefits for employees. this is all i know about them. i'd be interested in finding out more.

re the structural changes: i don't know much about economics either but i can't help but feel that cutting corporate tax is going to be of more damage in the long term than help. how many employees can these companies employ anyway? not enough to compensate society for cuts to government programs and subsidies caused by low taxes (among other things).

illuminate, memz.

Memz said...

well, ok a couple of things, I dont know if I am a big fan of unions. just seeing how unions operate in Canada and in France really turns me off the idea.

As for your question about corporate taxes, and economic strategy. Well it is simple we have two main directions to choose from now (and i mean today not 10 years down the road, because in 10 years we can change our direction)

1- Increase income and quality of life by increasing the following: subsidies, minimum wages, social services. Which is fantastic but we really cant afford it now. Our economy is screwed with high deficit, high inflation and high unemployment. So our tax base is shrinking both in real value (due to inflation) and nominal value (due to a decrease in the number of contributors)

Alternatively we have this option:

2. Increase income and quality of life by increasing productivity and the size of the economy. To do so we need to a) attract foreign investment b) encourage and enable entrepreneurship. c) increase skill set of the labour force

To do that you need to one, lower corporate taxes, to get more companies to work here. Invest more in education and open new markets to Egyptian entrepreneurs.

To do all this, we need to control our budget (not cut services), and in the medium term as more companies open and more entrepreneurs succeed employment levels increase, tax revenue increases (even though taxes decreased the number of tax payers increased). And as the skill level increases and employment increases the labor market is more competetive and income for the average Egyptian increases.

Trust me; with good education, the west will not just send us the shitty call center jobs. Just a simple example is India making huge in roads in the US law industry:

Does that help forsooth?