"Price hikes" — a ghoul threatens middle class

Prices have skyrocketed lately, reaching unprecedented and unbearable levels for large segments in the society, which imposes a severe challenge for the Egyptian government in 2017 represented in protecting middle class from falling into poverty.

"The next revolution will be a revolution of the hungry", "Pray for the middle-class, as it is currently being relentless grind down" "Died -to the mercy of God- the middle class after a bitter struggle with the country". Using the previous words, the activists of social media networks expressed how a wide segment of the Egyptian people suffer due to the undergoing economic woes which are reflected in a deterioration of living standards for many Egyptians. 

“The breakfast of the poor in Egypt have always been a dish of fava beans (foul) and a cup of tea. Today, we can’t afford to drink tea after sugar has doubled in price and we fear not to be able to afford the dish of foul tomorrow”.  Said an old man who was shopping at a hypermarket. “We cannot tighten the belts more. Enough is enough, life has become bitter and unbearable”.

He continued, “I came here to buy a bag of sugar because the grocer next to my home stopped trading in sugar to avoid problems with government”. 

INFLATED PRICES: The crisis of a disappearance of basic goods started with baby formula shorten from the market, passing through a shortage in medicine and drugs, rice, sugar, cooking oil, reaching poultry and other commodities. Despite the efforts of the army to combat prices skyrockets by providing basic food products at low prices in an attempt to alleviate the burden on low and middle classes, many essential commodities kept disappearing from the market and inflation rate reached unprecedented levels.

The subsequent wave of prices jumps that have swept many commodities, resulting in a general increase in the level of prices was not accompanied by a similar rise in households’ incomes, pensions or individual’s share in food subsidy cards to offset the price change. The government has merely allocated an additional 3 pounds to the cards of food subsidies beneficiaries, leading to an increase from 18 to 21 EGP. Meanwhile, the rate of inflation has roughly accelerated, hitting highest records in eight years.

Central bank of Egypt declared on Thursday, December 8 2016, that the annual core inflation rate in Egypt jumped to 20.73 percent in November 2016 compared to 15.72 percent in October 2016, representing a 5 percent increase. Likewise, annual headline inflation rose to 19.42 percent in November 2016 from 13.56 percent in October 2016.

Central Agency for Public Mobilization and Statistics posted on the same day, Thursday December 8, press release titled "The monthly inflation rate rises by (5.0%) in November 2016". It stated that "the annual rate of inflation recorded (20.2%) in November 2016 compared to November 2015. The significant increase in the monthly and annual rates returns back to the reflections and impact of pound exchange rate liberalization decision against the dollar and other foreign currencies, and the decision to increase the prices of petroleum products".

The statement resumed "General index of consumer prices for the whole republic reached (211.0) in November 2016, recording an increase by (5.0)% from October 2016 due to an increase in meat and poultry group prices by (4.2%), cereals and bread group by a rate of (6.7%), vegetables group by a rate of (3.3%), milk, cheese and eggs group by (6.6%), oils and fats group by (8.5%), sugar and sugary food group by (14.5%), clothing and footwear division by (11.0%), transportation section by (12.6%), smoke and cigarettes group by (8.6%), health care section by (5.5%), furniture and fixtures and household equipment section by (7.9%), housing, water, electricity, gas and fuel section increased by (3.5%), a ready meals group by (4.5%)."

The Egyptian market has recently witnessed instability in price levels, where 364 imported commodities rose in prices, also local products that rely on imported material and inputs in their industries, as well as the fluctuation in prices in the automotive market. All this return to several factors:

PRICE SURGE' TRIGGER: Many factors have provoked public opinion on the reasons behind the spike of prices. It was driven by the frenzied rise in the US dollar triggered by the speculation acts in the parallel (black) market and the existence of two exchange rates for the dollar. The shortage in dollar supply in addition to the boom of the parallel market which sucked up liquidity from the official channels have also forced many small and big importers to resort to underground currency market to fulfill their hard currency needs. 

Importers faced not only a wide deviation in black market rates from the official rate but also currencies differences. The crisis of "currencies’ differences" has started to emerge, by the end of December 2016, between the companies operating in the local market and the banks on one hand, and between the importers and the Egyptian Tax Authority on the other hand. 

The first is represented in banks’ demand for companies to repay the value of the letters of credit at current exchange rates. This means that banks want to pass the burden of exchange gap resulted from currency floatation to the companies, and accordingly companies are asked to fill the gap and pay for the difference in exchange arose from the change in the official rate of dollar before and after floatation. It also means that the amount of dollar received by companies at 8.88 EGP (rate before floatation) is supposed to return back to banks at more than 18 EGP (rate after floatation), which will lead to significant losses that represent more than 100% of the companies' capital, and threats many companies of bankruptcy because they had imported production necessities, raw materials supplies, and products needed by the Egyptian market that were sold in Egyptian pound prices that preceded the decision of the exchange rate liberalization. 

The second is represented as a tax crisis, which resulted from the increase in the gap between the official rate of the dollar and its price on the black market, as well as the scarcity of the currency, which made the producers and traders forced to fulfill their expenses denominated in dollars from outside the banking system at a higher price before releasing the pound exchange rate , without being able to incorporate the real price of the dollar in their tax statements, which makes the Egyptian Tax Authority rely on the official rate announced by the central bank. Hence, produces differences that are not deducted from the tax base for the taxpayer and therefore subject them to tax.

The application of the value added tax (VAT) in mid-September 2016 was accompanied by price rise. Also, Traders’ greed and exploitation of prices in light of the disappearance of some of the products from the market and a wave of high prices and the high value of the dollar have increased the crisis, regardless of their motive, whether harm to the Egyptian economy, or increase the profit margin. Reducing subsidy on petroleum products, electricity and other utilities have also increased financial pressure on middle and lower classes.

The floatation decision of the pound and the depreciation of the local currency's value against the dollar are the reasons behind the increase of inflation in November 2016, as mentioned by the CAPMAS. 

Also, according to the CAPMAS, the fast-paced population growth limited the state's ability to make a tangible change in living standards, due to the imbalance between the increasing population growths with the current economic growth rates. CAPMAS announced on November 24, 2016 that the population consensus has reached a total of 92 billion people living inside Egypt, and that the number of population was 91 billion on June 5, 2016, which means that the increase in population by one million occurred in less than 6 months. 

The announcement also pointed out that the most risky challenge facing the Egyptian society nowadays is the population growth rate which reached 2.4% in 2015, and this worth five times population growth rate in the developed countries and twice as population growth in the developing countries.

Shedding the light on the woe of price hikes and the misery of the Egyptian citizen have lately made some prominent broadcasters to start to urge the Egyptians to lean towards austerity, patience to harsh living conditions, and bear the price rise in order to uphold the national interest. This prompted the economic expert, Dr. Medhat Nafei to launch an initiative on December 25, 2016, through his personal account on the social networking website Facebook, demanding to nationalize and confiscate the money of the media broadcasters who insult the people and ask the poor to austere, saying "I call on nationalizing and confiscating the money and property of the presenters of the talk shows who oversteer the poor people, claiming that the people are disgruntled. We want to test them in the same conditions of the people so they can be a role model".

A large number of social network users interacted with the initiative, a number of public figures supported it and the media shed the light on the initiative. So, dr Nafei assured that the initiative is neither random nor reprisals, saying: "I emphasize that the call is not random or retaliatory But these news media are accustomed to rebuke the people and call Nasirian experience and bring the Egyptians to incur it. So, comes the call to nationalize them and, of course, this amount of the surplus credit of patriotism, which compels them to cramp on air as they insult the people will hold them to accept voluntarily the implementation of the initiative. But for those who reject, we say to them: Good-Bye! ”.

 Dr Nafei has also clarified that the purpose of the initiative is summed up in three points, first purify and improve the performance of the media to serve the people not to abuse them, second restore the value to role model by deeds not empty words, third deliver a "peaceful" message to the decision maker that the collapse of the popularity of these broadcasters and that their aligned message shifted to pal on whom they support”.

In another context, a group of political parties and a number of Egyptian movements launched on December 26, 2016 «People's Committee for social justice against price rises and impoverishment» to overcome the recent economic decisions of the government which caused a price rise. The founding statement said that “Taking such steps is a clear determination of the ruling authority to apply the same policies and practices that revolted by the people, and pursued by previous regimes over the past forty years, and even in the most aggressive and authoritarian, and brought millions of people to below the poverty line, and assassinated the rights of Egyptians education and health”.

As part of the state's efforts to relief the burden of prices rise on the shoulders of the citizen, the government has undertaken several steps and started working on the following aspects

CONTROL MARKET PRICES: The head of the Consumer Protection Agency (CPA), major-general Atef Yaacoub, has launched a symbolic one-day campaign to boycott shopping on December 1, 2016 under the title “Purchase-boycott day”. The initiative came as a result of an imbalance between buying and selling processes within the Egyptian market that triggered by prices surge in an exaggerated manner without dwindling. The call for boycott aimed at urging the public not to surrender to soar prices, restrain merchants’ greed, deliver a strong symbolic message to the traders who raise prices unreasonably and force them to reduce commodities prices to be in line with the real prices.

The campaign was endorsed by a large number of people who interacted with it and supported the initiative. The rainfall in that day has also helped in succeeding the campaign and reduced procuring processes.

After the success of the boycott initiative under the slogan "Day without buying", the CPA is started setting up the lists of the commodities which witness the most prominent price upsurge unjustifiably, so as to implement the agency’s plan to boycott the goods of highest prices. The CPA will also prepare a blacklist of greedy traders, as well as white-list of committed traders.

The blacklist is being prepared for the exploitative traders who make profits up to 200% and 300% at the expense of the consumer. The CPA will also announce them to citizens to watch out for prices manipulative acts done by some merchants to force them to decline prices to real values otherwise, citizens will cut them off.

Meanwhile, the white-list is being prepared for the dishonest traders for whom the agency will allocate souvenir photo as a "Smile Face" to distribute them, and keep them in their stores in order to be a tool to gain consumer confidence in trading with those merchants and increase their popularity, reputation and accountability so that consumers can deal with them exclusively.

Consumer Protection Agency has also asked the masses of Egyptians to help the agency in the carrying out the duties entrusted to them through reporting their complaints to be able to take action against violators and control markets.

LOOSEN CURRENCY PEG: On November 3, 2016, the Central Bank of Egypt decided to take several measures to correct the trading policy of foreign exchange through freely floating the Egyptian pound in order to loosen the Egyptian pound’s peg to the U.S. dollar, achieve monetary stability that targets lowering the levels of inflation and confirm the confidence in the Egyptian economy.

The Central Bank of Egypt has also issued a press release on December 6, 2016, which announced that Central Bank of Egypt (CBE) and the People’s Bank of China (PBC) entered into a bilateral currency swap for a total amount of 18 billion Chinese Yuan ($2.62 billion). The agreement is valid for three years, and can be extended by mutual consent. This bilateral currency swap is a mutually beneficial arrangement between both countries. 

The statement continued “This agreement demonstrates the strong international support that Arab Republic of Egypt has garnered with respect to its homegrown reform program. Additionally, it complements a series of measures taken which aim to unleash the vast potential of the Egyptian economy and instill confidence by bolstering economic activity.”

Han Bing, the economic and commercial counselor at the Chinese embassy in Cairo, said during the launch of the activities of Egyptian-Chinese business forum on Thursday, December 1, 2016 at the Ministry of Investment, that “The size of trade balance between Egypt and China reached $19 billion last year, where China exports many products to Egypt, such as automotive, textiles, iron products, while imports from Egypt Petroleum materials, raw materials and some agricultural products”. He also pointed out that China is willing to expand imports from Egypt base to suit the market and the Chinese taste, and that Chinese companies are doing the necessary publicity to stimulate trade partner in Egypt. 

In addition to strengthening the relations between Egypt and China, supporting the commercial trade between the two countries and promoting the reform measures undertaken by the government to stimulate the economy and attract investment, this bilateral cooperation is expected to help in relieving the burden on the dollar and reduce the demand for it by replacing the yuan and the pound instead of the dollar during commercial transactions and the import process, which may reduce large dollar at banks and lead to a decrease.

In the same context, Banque Misr has issued a press release on December 19, 2016 on its official website, mentioning that it signed a memorandum of understanding with the Industrial and Commercial Bank of China (ICBC), worth $500 million. The bank aims to prop up dollar liquidity through the foreign loans, to meet clients' demands for funding for joint Chinese-Egyptian projects. Furthermore, Banque Misr has obtained approval from the Chinese central bank to launch a representative branch in China.

In the current period, the Egyptian state is facing several economic, political and social challenges. Although, lots of strenuous efforts are exerted to cope up with these challenges and restrain them, they are not sufficient for uprooting many citizens from the risk of poverty. The biggest challenge in 2017 remains the protection of the middle class and the poor from rising prices and the specter of poverty that threatens the masses of the Egyptian people with the exception of a small class of wealthy upper class.