Egypt discussing private sector minimum wage

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CAIRO: Egypt’s National Wages Council approved earlier this week a LE 700 minimum wage for private sector employees, effective January 2012, state media reported.

Alaa Ezz, secretary general of the Federation of Egyptian Industries, told Daily News Egypt that the decision to increase the minimum wage to LE 700 has already been taken.

He also said that in discussions with the National Wages Council and the federation, officials have taken into account living expenses as well as the current state of the country’s economy.

Increasing salaries any further would be unfeasible. “You have to put in mind social considerations at this critical stage, while also keeping in mind the state of the economy,” he said.

“When making this change, we take into consideration the share per capita and productivity, the GDP and the cost of living,” he added. “This figure, however, will not be subject to social insurance because the social insurance takes 50 percent.”

Ezz said the figure is inclusive of bonuses as well as meals while on the job.

Minister of Manpower Ahmed El-Borai said that the minimum wage, without specifying public or private sector, should take into account increasing prices and living expenses.

Mark Millar, head of research at Naeem Holding, questioned whether a decision like this can be implemented in the private sector given the current economic climate.

"Whatever they impose now, especially in the private sector, can easily be circumvented. Who is actually going to watch if the private sector applies these wages?" he asked.

"There are no police [authorities] on the streets, let alone in private companies. There are ways around it,” he added.

Some fear that the already sluggish economy, still reeling from the effects of the January 25 uprising on key sectors, may be further hindered by added financial pressure on the private sector.

With foreign reserves dwindling and tourism trickling in, the main focus has been to attract foreign direct investment. However, with changing rules in the business field, investor confidence may be kept at bay for a while longer as uncertainty continues.

"If you increase wages in the private sector, people might lose their jobs, companies might not be able to afford and might let people go, or companies will just find a way to circumvent the law,” Millar said.

Egypt’s unemployment rate has increased from close to 9 percent in 2010 to around 12 percent in the second quarter of this year.

The bigger concern has been setting a minimum wage for the public sector, a heated debate of the past years that has intensified this year. The main obstacle facing the finance ministry is how to finance pay increases across the board given the already dented national budget.

Finance Minister Hazem El-Beblawi has said that he seeks to set a 1:36 ratio between minimum and maximum wages. Labor rights activists have called on at least a LE 1,200 minimum wage, commensurate with the basic needs of a small family. However, the government’s suggested figures have always been around LE 700.

"If the public sector is increased to LE 1,000, for example, then somewhere else in the [national] budget has to give," Millar said, pointing to subsidies as a possible area.

Subsidies, he said, have not been “well targeted.”

“If the government can change the subsidies system that would help,” he said. “They can start making subsidies more targeted towards things that need it; for example, fuel subsidies are not well targeted.”

“Also, if they do take the IMF [International Monetary Fund] loan, and it looks like the government may be leaning towards accepting the loan, some of its conditions may include refocusing subsidies,” he added.

Egypt is reportedly in talks with the IMF to accept a loan that would prop up the national budget, which is expecting to see a rising deficit.

El-Beblawi said this week that Egypt’s budget deficit in the year that began in July was an estimated 27-28 percent of total expenditure. Some 33 percent of total spending went toward subsidies and another 22 percent toward interest payments on Egypt’s debts, which meant that 55 percent of the budget was out of the control of the finance ministry, he added, according to Reuters.

Millar said accepting the IMF loan would open up the door for more economic development because it would give the state more credibility in these murky economic times where local and foreign investors are shying away from the market.

“The country is drifting sideways right now, there is a decision vacuum going on and it is paralyzing business because nobody can make decisions and nobody can get things done,” he said.

“Even people who want to invest can’t because they can’t get the proper signatures they need to approve their business,” he added.

Regarding the minimum wage, Millar said the interim government may not be in a position to make any concrete changes.

“Inflation is actually tempering down, the trend in DPI [disposable personal income] is cooling off, but there is still a lot of industrial unrest in all sectors,” he said referring to ongoing labor strikes.

“It’s the function of the people with newfound freedom,” Millar added.

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