On March 24, the Egyptian Prime Minister Mostafa Madbouly announced a series of measures to counter the threat of the COVID-19 pandemic. These included a two-week curfew from 8 p.m. to 6 a.m., punishable with a four-thousand Egyptian pound fine. The curfew was preceded by decisions to close all places of worship, schools, and universities, as well as measures to restrict public sector employees to essential staff. However, on April 2, a spokesperson for the ministry of housing announced the lifting of these measures beginning on April 4 for the construction sector, which employs four million workers. Such an exception considerably reduces the effectiveness of the imposed restrictions. The government previously announced on March 22 an economic stimulus, including a three percent reduction of interest rates, capital gains tax breaks for foreigners, capital gains tax payment deferrals for residents until the beginning of 2022, and the provision of one hundred billion pounds to support the private industrial sector.
These initiatives, however, fail to address the economic and social structural weaknesses that position Egypt to be especially vulnerable to a viral outbreak. Such inadequacies stem from the prioritization of military spending in 2015. During this year, Egypt was the second-largest importer of weapons among developing countries, with imports reaching 11.9 billion USD. This trend continued into 2020, as Egypt is currently in the process of negotiating a 9.8 billion USD arms deal with Italy that is due to be announced on April 25, the anniversary of Sinai’s liberation. The government’s economic reform has been driven by fiscal discipline and a reduction in government spending, which led to increased levels of poverty and weaker local demand. Such effects on consumers negatively limit the prospects of private sector growth, making the economy even more susceptible to shocks.
Moreover, the Egyptian health care system’s chronic underfunding and fragility have become abundantly clear. For example, the percentage of health care spending witnessed a steady decline from 6.7 percent in 2000 to 4.2 percent in 2016. In the 2018-2019 fiscal year, health care expenditures totalled to 25 dollars per citizen, an alarmingly low amount compared to the global average of one thousand dollars. This reduction will likely limit the healthcare system’s ability to handle the large influx of patients expected in the case of a pandemic. Even more, there is a severe shortage of ICU beds. Egypt has only one bed per 813 citizens—Italy, whose health system is on the verge of collapse, has one bed per 363 citizens. Such a deficit is compounded by a severe shortage of medical staff. In 2019, the decline of ICU nurses reached 55 percent. As for physicians, 120,000 out of 220,000 locally-trained and educated doctors have left the country for employment abroad, a result of the health system’s poor conditions compensation.
Other hurdles facing the Egyptian government’s response to the crisis are the labor force and social welfare policies. The informal sector has reached an unprecedented level of predominance, which the Vice President of the Federation of Industries Tarek Tawfik has estimated to comprise over 50 percent of the economy in April 2019. The low level of participation in social security, which reached 48.1 percent in the total economy only adds to the challenges facing the economy. The percentage of social security participation significantly dropped in the private sector, amounting to 9.6 percent as of October 2019. Even more, 29.2 percent of the labor forces works as temporary labor. In order to address some of these concerns, the parliament passed a law that provides unemployment benefits of 75 percent of an individual’s original salary for the first three months. Over the subsequent weeks, the benefits are reduced to 45 percent. However, this law would not apply to the majority of the Egyptian labor force, as most of them are in the informal sector, do not pay into social security, or are mostly working temporary jobs. The government’s ability to provide support to those that are most likely to lose their jobs is thus severely limited. As such, the decision to impose a complete lockdown would result in considerable economic hardships and possible unrest.
In an attempt to support those in the temporary workforce amid the global COVID-19 crisis, the government has issued a one-time payment of five hundred pounds, the equivalent of 32 USD—an insignificant amount in the face of a prolonged pandemic. And on March 28, the government also denied rumors that it will order obligatory leave across the private and public sectors, and pay the wages of private sector employees to help weather the crisis.
The Egyptian government has also consistently pursued economic policies that have weakened the private sector, making the economy poorly-equipped to handle the pandemic. The government’s policies have reduced local demand, and hence, negatively affected the robustness of the private sector, as lower demand means lower opportunities for private sector growth. The regime’s economic reform program has also created adverse economic effects. The reduction of government subsidies, the imposition of a value-added tax of 14 percent, and the floating of the pound resulted in the rise of the inflation levels, which increased from 6.9 percent in 2013 to 23.5 percent in 2017. This inflation growth led to increased poverty rates and a weaker local market.
In May 2019, the Egyptian Center for Mobilization and Statistics, a government agency, issued a report titled “Income, Expenditures, and Consumption.” The findings indicated a sharp rise in the levels of relative and absolute poverty compared to 2015. Relative poverty rates rose from 27.8 percent to 32.5 percent in 2018, and the level of absolute poverty rose from 5.3 percent to 6.2 percent during the same period. Using 2015 prices, a drop in the level of family consumption accompanied the aforementioned rise of poverty levels by 9.7 percent. The drop was sharper in the urban areas, reaching 13.7 percent, compared to 5.1 percent in the rural areas. Such an increase in poverty rates not only leads to an increase in the level of social deprivation but also reduces disposable income. These circumstances can diminish the growth of the private sector. As expected, the non-oil private sector shrunk by the fastest rate in three years in January 2020.
Typically, a declining local demand can be offset by an increase in exports; however, the exports declined by 1.66 billion USD between 2013 and 2018. Based on the Central Bank’s data, in 2018, 41.1 percent of the value of good exports was derived from crude oil and related products, and the price of oil recently plunged by 24 percent, reflecting a multi-year low. This decline diminishes a vital source of revenue for the government. The expected losses in the tourism sector, which the Minister of Tourism Khaled Anani announced on March 16, is expected to reach one billion USD per month. This revenue loss hinders the government’s ability to provide economic support to the most vulnerable or to bolster the health care services in a short period of time.
The preparedness of the Egyptian government to counter the pandemic is curtailed by structural weaknesses, reinforced and worsened by years of governmental policies. The lack of public accountability has allowed the Egyptian regime to implement policies that spent billions on arms and increased poverty, while the health and social security system crumbled. Egypt's gradual slide into a military dictatorship has led to a deliberate erasure of the political process and a dominance of military elites, which allowed the regime to follow policies that promote the narrow interests of these elites. Such a governmental shift has left the state unable to perform one of its essential functions of protecting the populace in times of crisis.
Maged Mandour is a political analyst and writes the “Chronicles of the Arab Revolt” column for Open Democracy. Follow him on Twitter @MagedMandour.
