By Rahim Elkishky
The idea of burning the country to the ground and arguing that “it’s corrupt to the bone” is no different than a plan aiming to actually destroy the country. What’s left in a country when its army, police, judiciary system, economy, and all its institutions fall apart? A country is not a company, in which you can claim bankruptcy, shut it down, and start a new one. Creative chaos, or the belief that chaos eventually brings order, is nothing but a myth. It has been used by the US in Iraq, and there, chaos brought nothing but chaos.
In Egypt, there are calls to bring all institutions to the ground. The trickiest and currently most sensitive institution to talk about now is the police. Some are assuming that all 1.2 million belonging to this institution are rotten. This is an unacceptable generalization, but even if it were true, totally destroying it would still only lead to anarchy. Actions and consequences need to be weighed. What will happen if we let go of 1.2 million policemen? First, there would be chaos, and it should not be taken lightly; and second, more importantly, this would completely destroy the economy.
Let’s not forget that a big portion of 90 percent of Egyptians belong to the middle and lower classes and are starting to suffer. There are some signs that the revolution has lost supporters and it will keep on losing more if the economy doesn’t pick up soon. We need 6.5-7% average growth to employ an annual 800,000 new graduates seeking jobs in the public sector and new projects supported by foreign direct investment that is now gone. We have 5 million people living off the tourism sector, which declined by almost 30 percent in terms of volumes and number of tourists, but by over 60 percent when accounting for discounts applied by hotels to maintain attraction for tourists. Most companies are seriously considering downsizing if they have not done so already. Many large companies’ first half results are down by 50, 100 and even 200 percent (ie incurring losses) compared to last year; that means less taxes paid (which is more than half of the government budget), a wider budget deficit, more downsizing and a bigger unemployment rate. Add to that the tens of thousands returning from Libya looking for jobs. It is unclear when Libya will start rebuilding and be able to take them back.
The latest optimistic reports show Egypt’s economy growing at 1.5 percent in 2011, down from around 5.1 percent in 2010. A lot have expected it to be in the red, mine included. But still, we have not seen such sharp decline since the early 1991, in a decade with at least five major terrorist attacks in Cairo, Sharm El-Sheikh, and Luxor. Back then our population was 25 percent less. If strikes continue, the growth will be negative much sooner than expected. Another declining quarter will make the recession official; that already caused our dollar reserves to decrease from around $36 to $25 billion, which keeps pressure on currency. It also adds to inflation, as we are mainly importing and trade deficit is not expected to improve due to expanding strikes and manufacturing disruptions. Importing necessary commodities like wheat and sugar will be much more expensive, and since subsidies are not expected to be lifted anytime soon, the government will have to carry this burden as well, which means an even wider budget deficit. To cover this deficit, the government will either need to borrow more money and increase it’s annual debt service cost, which — coupled with subsidies — is already over 50 percent of the budget, or start printing money without creating any real value which will add to the troubles of the average Egyptian due to inflation, which technically makes them poorer.
We had unprecedented growth in the past 5 to 6 years but the poor didn’t feel it (even though, according to the World Bank, Egypt is one of the countries with the least gap when it comes to income inequality (http://www.economist.com/node/18587127); as a result people lost faith in the economy in general. The problem might have been in the efficiency of the system to draw poor benefit from growth and this is what the government should work on, but in any case, we still need the growth; otherwise, there’s no income to work with and no money to try to distribute more efficiently. Without the growth, what we will surely see is actually more suffering of the lower working class, and middle classes quickly sinking to the bottom of the socio-economic pyramid. That means more violence, crimes, and extremism, which further reinforces my earlier point about the need for a solid police force today.
History tells us that chaos will lead nowhere. Two years of chaos and poverty led to the execution of revolutionary icons in France, it led to more or less another monarchy, and even some scholars are wondering if its objectives have ever been achieved at all.
Some 40 percent of Egyptians already living below the poverty line might even find it difficult to find the $2 a day on which they used to live. Polls show that only 12 percent of the population joined demonstrations (pro or against revolution) since Jan. 25, so a lot feel their conditions are worsening without having a hand in any of the political change. The economy will eventually rebound but when? Will it be a V-shaped rebound (short recession, quicker rebound), or a U- shaped rebound (long recession, slower rebound)? No one knows. The IMF is projecting a 2.5 percent growth in 2012, which is quite optimistic but still nowhere close to the growth needed to bring tangible results that would satisfy the masses.
The question is, how long can the 40 percent wait? Will they have their own hunger revolution, especially now that Jan. 25 has shown them the way to do it and the fear of security forces has been destroyed? Will they be joined by the newly deprived and unemployed?
What is clear is that everything that’s being done points towards a very prolonged ‘Indonesia-like’, messy, rebound that took several years to just get back to pre-revolution figures. This is exactly what Egypt needs to avoid. Recovery needs to start now.
Rahim ElKishky is the CEO of Information Technology & Services CO. He sits on the board of several other companies, including EMS-International Herald Tribune/Daily News Egypt. ElKishky holds an MBA in General Management from Boston University and a BA in Political Science from the American University in Cairo. Follow author on twitter @relkishky
