Hard Times Ahead for Egypt

By Alexander L. Taylor III

Mubarak's first major task will be to reduce food subsidies

Traffic in Cairo streets is regularly blocked by $40,000 Mercedes while their owners indulge Gucci tastes in smart boutiques. Foreign banks and trading companies compete for expensive floor space in new high-rise office buildings. Yet near by, millions of lower-and middle-class residents crowd ramshackle dwellings in fetid slums, and millions of fellahin till fields of wheat and rice in the Nile Delta as seasonal workers for $2 a day. In Egypt, a patina of superficial prosperity gilds a fragile economic core. The revenues from new trade policies and foreign investment are flowing to an all too visible superclass of the very rich. But at the same time, the great mass of Egyptians are struggling with overcrowding, a breakdown of critical services and lack of productive jobs.

The dichotomy between rich and poor is both as old as Egypt's pyramids and the most pressing problem facing President Hosni Mubarak. In his first major address since taking office, Mubarak last week told a session of the People's Assembly: "Egypt is for all. It is not a community of the privileged few, who would monopolize influence. Our success depends to a large extent on our ability to deal with the economy. The time for work has come."

Egypt's problems, though, defy easy solution. The per capita income is a meager $469 per year. Its middle class is beset by an acute lack of affordable housing. Industry is virtually stagnant, and productive foreign investment is anemic. The country now imports half of its food. Says Abdel Razak Abdel-Meguid, the American-educated Deputy Prime Minister for Economic and Financial Affairs: "Because of our favorable balance of payment statistics, the economy looks good on the outside. But inside it needs a lot of work."

The late Anwar Sadat in 1974 launched al infitah (the opening), a much heralded attempt to promote foreign investment by lifting restrictions on trade and the movement of currency. In addition, the government promised that the peace treaty Egypt signed with Israel in March 1979 would lead to a business boom. Said the billboards in Cairo at the time: PEACE EQUALS PROSPERITY.

This open-door policy initially appeared to be a success. First-class hotels began springing up everywhere, and companies from Coca-Cola to Pierre Cardin established plants to take advantage of the cheap labor. Egypt became a magnet for tourists, who spent $800 million there last year.

But today al infitah is regarded as a major disappointment. The dreams of massive foreign investment, in particular, turned into sand. Egyptian workers quickly came to resent the high-spending visitors with their flashy lifestyles. Western businessmen viewed Egypt as a vast untapped market for consumer products and invested in few projects that contribute to long-term growth.

Foreign executives have their own list of complaints. U.S. companies that wanted to build manufacturing facilities found their development plans mired in the corrupt and immobile government bureaucracy. Investors have also been turned away by the continued deterioration of vital services. Making telephone calls can take half a day because connections are poor. Water taps are often dry, and whole neighborhoods are frequently inundated with sewage. Public transportation, especially in Cairo, is badly overcrowded and unreliable.

Sadat's program hardly touched the lives of Egypt's poverty-stricken masses. Mokhtar Younis, 54, is a baggage porter at the Cairo railroad station and lives in a nearby slum. He is able to get work only about 15 days a month, for which he receives a monthly take-home pay of about $14. He and his wife Ne'mat, 28, live with their eleven children in a single room that measures just 9 ft. by 12 ft.

Mokhtar's large family, like millions of others, survives only because of price subsidies that keep down the cost of seven basic products: wheat, flour, sugar, rice, tea, vegetable oil and butane gas, which is used for cooking.

The government spends 30% of the entire national budget on the program of low prices, which has also badly distorted the whole economy. Bread, for example, costs only 10 a loaf and so farmers also use it as a cheap animal feed.

Many experts maintain that the first step in economic reform is to establish more realistic prices for the seven key commodities. In 1977, when Sadat tried to cut back the subsidies, bloody food riots broke out around the country. Nonetheless, the new government will try to tackle the problem again. Economics Minister Meguid says that the state is planning to embark on a food stamp program early next year that will continue subsidies for the poor and middle class but force the rich to pay the full price. Mubarak also said last week that he plans to direct al infitah toward more productive investment and away from the costly consumption of imported luxuries.

The new President's businesslike style is already drawing plaudits. Says one Western diplomat: "Sadat was a visionary, but he certainly was no administrator.

Mubarak takes administration seriously, and he's concentrating on the most important problems."

But the obstacles facing Egypt may thwart good intentions and a tough executive. The economy will be badly hit because receipts from oil exports, which provided $2.5 billion in foreign currency last year, are tumbling along with the fall-off in world crude prices. Egypt is also beset by a ticking demographic time bomb.

Its population of 43 million is growing at an astounding rate of 3% a year and could reach 70 million by the year 2000.

In his speech last week, Mubarak warned that Egypt's very existence was threatened by its deteriorating economy.

Said he: "Our greatest challenge is simply whether we are to be or not be." His paraphrase of Hamlet could not be more accurate. --By Alexander L. Taylor III. Reported by Peter Warg and Robert C. Wurmstedt/ Cairo

With reporting by Peter Warg, Robert C. Wurmstedt

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