Author: Amr Ramadan

CAIRO: “I wanted to go deeper into the complexities behind the apparent self-enrichment practices evident in the current government,” said Amr Adly, a PhD candidate at the European University Institute in Florence, Italy.

In his research paper, Adly argues that an “uneven distribution of property rights is deeply embedded within broader power relations permeating political regimes in Egypt.”

Adly was among a group of young Egyptian students from universities around the world who presented this week the findings of their research to a panel of experts, businessmen and professors.

As part of the seventh annual Forum of the Economic and Business History of Egypt and the Middle East, the Young Scholars Sessions provided a platform for advanced undergraduates, recent graduates, and graduate students at the MA and early doctorate stages to present their work. In return, students received feedback from scholars and peers in a fairly informal atmosphere.

The event was organized by the Economic and Business History Research Center of the American University in Cairo in collaboration with Middle East Studies Center, Partners in Development for Research, Consulting and Training, the Supreme Council for Culture and the National Center for Translation.

Adly’s paper, titled “Politically-Embedded Cronyism: The Case of Post-Liberalization Egypt,” delves into the politics behind cronyism and nepotism present today.

“The paper develops the concept of politically-embedded cronyism where state incumbents generate and protract uneven distribution of property rights in favor of a few private actors as tactics of regime survival that go beyond the mere interest of self-enrichment,” Adly writes.

Politically-embedded cronyism, he concludes, “is likely to emerge the more state incumbents retain their relative autonomy from their cronies through higher concentration of power in the executive and a declining role of societal groups in general and business in particular in the reproduction of the power of top incumbents.”

“The current regime have been very successful in playing the political game I have described in my paper, as political parties in many other countries have failed to contain self-enrichment practices which has led to them losing their political stability,” Adly adds.

Industrialization to privatization

In a paper titled “Public Sector to Privatization: Egyptian Industry between the Political Economies of Nasser and Sadat,” Nancy Elshami, a graduate from Columbia University, attempts to draw a more comprehensive picture of Egypt’s volatile political and economic situation throughout the rule of presidents Nasser and Sadat.

“While the Nasser period made great strides towards development and industrialization, it undoubtedly had its mishaps, falling victim to the shortcomings of import substitution industrialization which many developing countries experienced,” ElShami argues.

“I am a Nasserist, but I am aware of the issues and problems Nasser had at the time of his rule and believing in a certain ideology does not mean that you have to defend it blindly. I think that the public sector could have been successful if external factors, particularly the war did not hinder the industrialization process,” she comments.

“Egypt also had its own share of unique problems and political impediments which hindered the industrialization program and led to its eventual demise. Social structure and external pressures plaguing Egypt at the time thrust the development program to second tier priority,” she writes.

With regards to Sadat’s era, she again argues that external factors made a difference, but here these factors led Sadat’s “Infitah” (openness) policies to seem more successful than they really were.

“Wherein the political situation and the emergence of ‘windfall’ income due to either political conditions or natural resources were the primary cause of the relative prosperity during this period rather than the policies of openness,” ElShami writes.

She explains that the main problem with Sadat’s economic policies is that all investment went to the lucrative petroleum sector buffering the reform and modernization of other crucial sectors, particularly industry.

“This setup of the economy led to a variation of the ‘Dutch Disease’ where the rapid emergence of oil as a dominant sector diverted funds away from the industrial sector, and made Egyptian manufactures less competitive in the world market,” she concluds.

On worker relations

Dina Makram Ebeid, a doctoral candidate from London School of Economics, also focused on industrialization, but from an anthological perspective. Her presentation titled “Main Findings from Fieldwork: The Experience of the Egyptian Iron and Steel Plant through Time,” is the outcome of a year’s worth of visits to a steel plant.

Ebeid visited a steel plant three days each week for a full year and to observe workers, and her paper explores their experience in public enterprises in Egypt under neo-liberalism.

“Neo-liberal reform introduced by the state in the 1990s has been behind the restructuring of public enterprises and the change in the legal and social status of public sector workers today,” writes Ebeid.

“My research looks at how these workers come together and compete with one another under neo-liberal pressure,” she adds. “I also focus on the affects of neo-liberal reforms on workers’ households, their structures and their coping strategies.”

Ebied concludes that worker relations with higher level workers improve when conditions within the plant are enhanced through modernization.

CAIRO: Egypt jumped 11 places to rank 70th in the Global Competitiveness Index (GCI), up from 81 in 2009.

However, the overall improvement was largely based on deteriorating conditions in other countries, according to the seventh annual Egyptian Competitiveness Report (ECR) titled “Green Egypt: A Vision for Tomorrow,”

The Egyptian National Competitiveness Council (ENCC) launched the report in a conference Monday, presenting its findings and discussing the main issues.

Trade Minister Rachid Mohamed Rachid, who inaugurated the conference, disagreed with the report’s conclusion, which attributed Egypt’s improved ranking to the poor performance of other countries.

“Egypt showed progress when other countries were struggling, this is a testament to the financial and economic development Egypt has shown in the years prior to the crisis,” Rachid said.

While the financial sectors of other countries suffered, Egypt was able to remain healthy during the crisis, the report said, due to regulatory reforms and improved supervision.

Egypt jumped 22 places in the financial market sophistication indicator.

The composite competitiveness raw score however has not improved since 2007, remained at 4. The score is ranged from 1-7 with 1 being the lowest competitiveness performance and 7 the highest.

According to the report, scores were lowest in the areas related to human development, labor markets and macroeconomic stability. In labor market efficiency, Egypt ranks 126 out of 133 countries; and in quality of education Egypt came in at 123.

Officials also discussed fiscal policies that should be utilized to improve Egypt’s competitiveness.

The report finds that although fiscal, monetary and other reforms taken by the government were generally effective, “the crisis strongly highlighted the vulnerabilities in Egypt’s macro-economy.”

To be addressed

The report recommends that Egypt tackle issues including “high inflation, high unemployment rates, weak shared growth, persistent poverty, high budget deficits and high level of public debt.”

“Egypt has made significant progress in a number of pillars including capital market development, infrastructure and technology readiness, which has resulted in the 11 place jump in the rankings,” said Malak Reda, senior economist at the Egyptian Center for Economics Studies in her presentation.

“There is still a need for further progress in several other areas. Reform is needed with regards to macro-economic stability, and development of human resources through improving the quality of education and health and raising the efficiency of the labor market is needed,” added Reda.

The most controversial argument was about the quality of fiscal spending. The report points out that too much government budget is allocated to operational salaries and poorly targeted subsidies and not enough is used for investment in human resources and infrastructure that can improve Egypt’s long term competitiveness and lower poverty.

Amina Ghanem, deputy minister for international relations in the Ministry of Finance, said, “Fiscal space must be found through the re-distribution of public spending between current salaries and subsidy bills and long term investment spending.”

“This could be done by finding new revenue streams without raising taxes and developing policies to support the medium-term competitiveness and the construction of the Egyptian growth engine,” added Ghanem.

“Most importantly, this requires the establishment of an institutional structure that coordinates the balance between current spending and investment spending so the budget allocated for investment is not just the remaining "residual" amount after all the salaries and subsidies have been paid,” Ghanem explained.

As the title suggests, the report also proposes a strategic framework for action to move to a green economy, building on Egypt’s potential strengths and giving concrete recommendations on the roles of the government, private sector, civil society and education and research institutions in this framework.

Rachid stressed the importance of Egypt following the new trend.

“Egypt’s limited resources, rising population, recent potential water scarcity issues and food security prioritization are reasons why Egypt should consider adapting to the new economic trends moving away from consuming huge amounts of energy and water to a more sustainable model,” Rachid added.

“The green revolution is what we need as it a solution to many current problems including the ongoing depletion of our non renewable energy resources and the shortage of water as well as being a potential source of employment opportunities,” explained Rachid.

Mona ElBaradei, executive director of the ENCC, said that through its discussion and recommendations with regards to Egypt’s transformation into a green economy and its focus on human development indicators and the policies which advance them, the ECR provides a “pathway to the future” for Egypt.

CAIRO: Egypt has shown resolve in its plans to eliminate energy subsidies for industries by the end of this year in ongoing parliamentary talks regarding the budget.

The government appears ready to push forward on a plan that would phase out energy subsidies starting in July 2010.

In March, the daily Al-Borsa newspaper quoted Minister of Trade and Industry Rachid Mohamed Rachid as saying that the country will resume the gradual elimination of energy subsidies to non-intensive industries in July.

The government suspended initial plans to reduce energy subsidies after the onset of the global economic crisis in 2008.

“Egypt plans to eliminate subsidies to all industries by the end of 2011, after having eliminated those to energy-intensive industries. We are withdrawing the energy subsidy, going back to the original plan that we have put in place in 2007," Rachid said.

Rachid said that energy-intensive industries, such as cement, steel and fertilizers, were no longer receiving energy subsidies.

According to Magdy Rady, cabinet spokesperson, plans to eliminate subsidies were in the pipeline for two years prior to the financial crisis, but were then put on hold.

“We had to stop the elimination when the crisis hit and we are restarting the process gradually this year until all subsidies are eliminated but the end of 2011,” he said.

Ahmed Ezz, head of the People’s Assembly’s planning and budget committee, stressed in his speech to parliament last week the importance of rationalizing energy subsidies gradually over the next five years.

One side effect of the rise in energy prices is expected to be higher inflation rates until the end of the year, said Reham ElDesoki, senior financial analyst at investment bank Beltone Financial.

“A change in energy prices for non-energy intensive industries in July 2010 and the seasonal factors leading to higher consumption in the second half of the year, would now lead, in our opinion, to inflation remaining somewhat high in 2010, averaging 13 percent, compared to the previously expected average of 11 percent,” ElDesoki said in a statement.

Tarek Selim, economics professor at the American University in Cairo, and an industrial economist with numerous writings on energy policy, said that the benefit of reducing energy subsidies is that it reduces the budget deficit.

In his speech last week, Ezz noted that energy subsidies jumped from approximately LE 1 billion a decade ago to LE 67 billion in fiscal year 2010, adding that the Egyptian General Petroleum Corporation is heavily indebted due to mispricing of fossil fuel.

Although not it was not explicitly stated that the plans would affect subsidies for consumers, these statements have led many to believe that the change in subsidies will not only be limited to industrial use.

Selim says that the government plans for the subsidies could cause high levels of inflation.

“A total elimination of subsidies for industry, as well as consumers, will cause a large hike in inflation of around 7- 8 percent. So if inflation is at 11 percent we can expect to see it go up to 18 or 19 percent,” he said.

“Such a change should only be carried out gradually, in parallel to ensuring more social welfare to citizens to balance the affect of rising transportation and food costs. The government should increase the minimum wage or insure an increase of at least LE 150 per month per household,” Selim added.

ElDesoki explains the link between energy prices and inflation citing what happened in the recent butane shortage.

“With the shortage in butane gas and diesel in the local market in quarter one of 2010, prices of these products rose on the black market, leading to a lower than expected decline in headline inflation in quarter one of 2010.

“Inflation remained at the 12-13 percent levels…as the effect of effectively higher energy prices impacted transportation costs of food items, which have a 44 percent weight in the benchmark urban consumer price index,” she added.

CAIRO: In a heated argument that saw one participant escorted out of the hall, government officials and labor activists disagreed on the newly proposed social insurance and pensions law during a workshop organized Tuesday by the Social Contact Center (SCC).

While some of the participants hailed the draft law as reform, others called it a constitutional right. Others, however, expressed their opposition to the law, saying the current one is better.

Under the title, “The Legislative System for Social Insurance in Egypt,” the feasibility and applicability of the draft law were discussed by political parties, state representatives, and professional and labor syndicates. This is part of an SCC mandate to rationalize the policy making process through moderating discussions of the draft law before legalization by parliament.

Mohmed Moeet, assistant to the Minister of Finance, stressed the importance of dialogue and transparency with regards to the law.

“The discussion about this law did not start in Parliament or in the Shoura Council; it started in workshops just like this one in an effort to create dialogue and awareness,” Moeet said.

“The law started out as being an insurance and pensions law, but has now become a comprehensive law for a long term strategic reform of the social welfare system, providing a decent pension and insurance service for all, supported by the rule of law and insured by the treasury,” he explained.

The proposed law is expected to increase the government’s revenues as it aims to increase the number of applicants by promising pensioners and health and injury victims more financial compensation. This would be financed by decreasing the percentage of wages paid by lower income employees and increasing the share paid by higher income employees.
The law will also raise the retirement age gradually to reach 65 by 2027 and increase the paid unemployment leave from six months to a year.

“This law has been discussed for three years now and this event is just a continuation of the transparency and flexibility shown by the government with regards to the law,” added Moeet.

Hussein Megawer, head of the Egyptian Labor Unions in Egypt, said he played a significant role in the law’s formulation.

“We amended 38 articles in the law, taking the positive things from the old law and adding to the new one. Labor representatives were consulted every step of the way,” said Megawer.

Public mistrust

For the government, the pursuit of garnering a consensus on the draft law has been met by public scrutiny and mistrust.

Saber Barakat, a lawyer and labor activist in the coordination committee for Rights and freedoms of Workers Unions, said that insurance and pensions are constitutional rights and refused to call the proposed law “reform”.

“This is merely a way for the government to gather funds. The law we have now has been praised by the ILO as one of the best laws in the world.” Why are we changing it? Because the law is costing the government, and the IMF says that government should reduce social welfare spending,” explained Barakat.

According to Essam El Din Shiha, lawyer and member of the higher council of Al-Wafd party and a proponent of the draft law, said that there will be a new system for running the government pension and insurance funds.

“The system will be run by the High Council for Pensions and Social Insurance, a body which includes all government and labor stakeholders. In the past, the funds made from pension and insurance payments went to the National Investment Bank giving an interest of only 4.5 percent and this money was not invested, causing a lapse in revenues due to the much higher inflation. Now 35 percent of money will be invested and money will also be insured by the treasury,” said Shiha.

One of the main concerns is whether the government is capable of investing the money successfully and insuring the insurance payments and pensions.

When this question was raised by MP Yosry Mohamed Bayoumy, who strongly opposes the law, the session erupted into chaos in a scenario reminiscent of regular parliamentary sessions.

“There is no consensus,” shouted Bayoumy.

Bayoumy was prohibited from continuing and the moderator told him that he will have a chance to present his views in parliament.

Opponents of the law then started loudly complaining that the minister’s assistant had the right to speak, and thus they should give the opposing view a chance.

One of the participants was escorted out of the workshop for refusing to follow the regulations, but tensions seemed to ease as Moeet and various proponents calmly repeated their defense, assuring the public that the law was in the interest of pensioners.

Barakat then made a concluding comment about linking the current pension and insurance law to the minimum wage.

“The problem is that pensions are low and wages are low; we need to increase both and we need to do this by reforming the already existing laws for pensions and insurance as well as wages,” commented Barakat.

As the parliament is currently discussing the state budget, it is still unclear whether the draft law will be discussed and subjected to the voting process before the end of the current parliamentary session.

CAIRO: In the current context of worker’s unrest and increased private sector concern about Egypt’s labor law, the views of economists, organizations and businessmen differ, particularly when it comes to minimum wage.

Calls to set the minimum wage at LE 1,200 were based on proposals by Ahmed El-Naggar, an economist at Al-Ahram Center for Political and Strategic Studies, whose research was used to obtain the recent court order mandating the government to raise the minimum wage to comply with the current cost of living.

A lower minimum wage of LE 900 was proposed by Egyptian Trade Union Federation (ETUF) President Hussein Megawer during recent negotiations with the government.

Egypt’s national minimum wage remains unchanged since 1984, and stands at LE 35 per month.

Private sector CEOs and businessmen have cited low productivity as the main reason why Egyptian workers, who they say have few skills and negative work ethics, do not merit this much of a rise in minimum wage.

According to the World Economic Forum Global Competitiveness Report for 2009-2010, Egypt ranks 93 out of 133 countries and has a score of 3.6 in the pay and productivity index, showing a comparative disadvantage with regards to this parameter. The index measures the link between pay and productivity and the score ranges 1 for wages not linked to productivity and 7 for wages strongly related to productivity.

When compared to other developing nations, even Arab countries at a similar developmental stage, it is clear that the wages to productivity issue needs reform. Tunisia ranks 65th, Jordan 56th and Qatar 4th in the same parameter.

Mohamed El-Trabelsi, a workers specialist at the International Labor Organization (ILO), claims that the wages productivity dilemma is the “chicken or the egg” question.

“When workers are satisfied with their wages, working conditions, relationships with employers, and their general living standards, they will no doubt work harder. Just as much as employers will pay more for more productivity” said Trabelsi.

According to Vice President of Electrostar Egypt Khaled El-Monoufi, wages and productivity should be closely tied so that worker’s productivity justifies their expected wages.

“We pay the most inexperienced workers a minimum of LE 750 a month; but as workers gain more experience and their productivity increases, their wages will rise significantly,” he said.

He warns about raising the minimum wage without consulting the private sector. “This will inevitably cause layoffs and inflation,” he said.

Mohamed El-Abd, CEO of El-Abd Companies, also said that wages should be considered only when linked to productivity.

“Along with layoffs and inflation, raising the minimum wage will cause the private sector to resort to informal contracting causing the workers to lose their benefits,” he said.

“Productivity should be measured by the ratio of productivity to labor costs. If workers’ productivity increases then wages will automatically go up and you won’t need to set a minimum,” El-Abd added.

Workers should be fairly paid, he said, but according to their merits and skills. “Every case should be taken separately. For example, in our limousine service we pay the drivers a salary less than LE 1,200 but they make much more than that from tips.”

Capacity building

“If the government wants to increase welfare it should focus on improving health and education, not raising the minimum wage,” said El-Abd, adding that an alternative to raising the minimum wage would be to provide on-the-job training. “This would increase their productivity and their wages.”

Skills training should include changing employees’ attitudes and work ethic. “Workers try to avoid work as much as possible,” El-Abd complained.

Luca Azzoni, worker skills specialist at the ILO, said, “The proposal made by different private sector employers to train inexperienced workers at the workplace is one solution to the labor problem but only if it is over and above the minimum wage.”

He added, “The minimum wage is required for a decent living and should have no connection to productivity.”

Karima Haggag, head of the textile research division at the National Research Center, said that most textile workers deserve the proposed minimum wage of LE 1,200. “Most workers in the textile industries are well trained.

“There is progress in the vocational training programs by the private sector but the workers leave the factories after being trained for better wages in other companies, the labor law must be changed to insure employers can keep their workers after training them.”
To that point, Azzoni adds, “Employers believe that workers coming from within the government vocational training and education systems have inadequate skills and therefore are not productive enough. But the government can only train workers up to a certain point. The responsibility is on both government and private sector.”

“The government should focus more on training in core skills to make them ready for vocational work. This training should not only focus on the technical aspects but also on attitudes and creating a better work ethic.”

He also underscored the importance of career guidance to bridge the gap between what youths expect and the realities of the job market. “Career guidance should begin from an early age when children should be informed of different careers in vocational work to raise their interest about their preferred career and to decrease the negative attitudes workers have towards technical and vocational fields.”

Mona Said, labor economist and assistant professor at the American University in Cairo, said that the main problem of labor in Cairo is “informalization.” If a minimum wage is legally raised to a level they perceive is too high, the private sector would react by moving towards offering informal jobs for lower wages and benefits.

“There are three stakeholders in the wages issue, the government, the private sector and the workers’ ‘real’ representatives,” remarked Said.

Said commented that “real” labor representation is not incorporated into the state structure as the current labor movement is. “There is a social contract between labor and the state that guarantees job stability, wages rising with inflation and minimum decent wages for the workers in return for them giving up the right to protest.”

“The contract was renegotiated in 2003 with the new labor law that took away lifetime job security while giving the workers a very limited right to strike, but this is still not enough. As we can see grass-root labor protests on the increase, without any role for unions,” she added.

“In Egypt these problems can only be solved if there is dialogue between these three stakeholders. They have to find the best arrangement about the minimum wage and the labor law in general, being mindful of private sector values like competitiveness, productivity and government concerns of inflation.”

El-Trabelsi said the ILO should be the mediator between these stakeholders. “In an effort to fix a just minimum wage and find a balance, there must be dialogue. We can facilitate this. We have enough experience in the area and can consider all factors while making the calculation.”

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CAIRO: In a lecture delivered via web conference at the American University in Cairo Thursday, Tun Dr. Mahathir bin Mohamad, the former and longest-serving prime minister of Malaysia, wasn’t surprised when asked by Egyptian students why he left office.

Mohamed had willingly stepped down from office after 22 years. It wasn’t the first time he had been questioned about this decision by Egyptians.

“When I was last in Alexandria, and they asked me why I left office, I told them I had overstayed my welcome, and I was surprised to find them all clapping. My mother always told me I should never overstay my welcome, I wanted to leave earlier but I felt I had to do more but in the end I left when I felt this way.”

During the web conference, Mohamed shared strategies to building a successful nation based on his 22-year experience in office.

He explained that achieving independence is far easier than building a successful nation after independence.

“It is sad to see, that nations after independence blame the colonialists, but we should look forward. There is much to learn from the experience,” he told students of AUC’s School of Global Affairs and Public Policy (GAPP).

The lecture was also broadcast at the Dubai School of Government, with which AUC recently signed an MOU to promote cooperation in educational lectures and seminars.

Tun Dr. Mohamed bin Mohamad, born July 10, 1925, was Malaysia’s fourth prime minister. He held the post from 1981 to 2003, making him Malaysia’s longest-serving prime minister, and one of the longest-serving leaders in Asia.

Mohamed’s political career spanned almost 40 years, from his election as a Malaysian federal Member of Parliament in 1964, until his resignation as Prime Minister in 2003. Upon retiring, he was granted Malaysia’s highest honor, which entitles him to the title Tun.

As prime minister, Mohamed was credited with engineering Malaysia’s rapid modernization and during his term in office and he was considered by some as one of Asia’s most influential leaders. Mohamed was also widely known as an outspoken critic of Western-style globalization.

In 1991, Mohamed unveiled Vision 2020, a blueprint for Malaysia’s journey to becoming a developed economy and a mature democracy by the year 2020.

He explained that disparity in economic wealth is the biggest dividing factor and the reason Malaysia is faced with racial conflicts. Malaysia’s confrontations are not just between the rich and poor, but the rich belong to one race and the poor belong to another, he said.

“These racial confrontations were very likely to obstruct development, so [that was] our first priority,” he added.

Mohamed’s strategy was to let each race form a political party, which would in turn meet to form a coalition so all three races would be represented in government. The parties of this coalition, he continued, would run in elections and the winner would have support no matter what race they belong to. This, he claimed, solves the political problems.

Economic strategies

Mohamed recognized that Malaysia’s economy also needed help. He explained that administrators and public officials first had to be reoriented and trained so they could understand nation building and development. New ministries were formed to support industry and to promote growth.

Riots were a looming threat because the poor did not get enough of the resources, so Mohamed introduced measures to redistribute wealth.

“This had an effect on growth but it was justified because it took care of racial and political stability; stability helped the nation manage development successfully,” he said.

Mohamed then described Malaysia’s industrialization experience. In the beginning, the whole country was just small farms in rural areas, and income generated by these farms could not support whole country, so they decided to go with industrialization, and since they had no industrial expertise, foreign investors were invited.

“New jobs were created and manufacturing industries that were labor intensive ensured that the entire workforce found employment.

“Eventually Malaysians learned and began setting up businesses of their own. This made Malaysia less dependent on FDI. In this time there was a focus on infrastructure, power and water supplies and industrial parks were built,” said Mohamed.

As incomes and revenues for the government began to grow, this development then became a privatization phase. In 1991, he launched the Malaysia Incorporated concept, stressing the need to define, develop and operate a new pattern of behavior, thinking and interaction vis-à-vis the public/private sectors’ relationship.

“This enabled the government and the business sector to work together with 28 percent of profits going indirectly to the government,” said Mohamed.

“To [achieve] a higher standard of living, the country made new investments in airports, roads, health, schools, and infrastructure. The private sector would eventually manage transport, communications, tourism and many other sectors, while rubber and palm oils and new industries like electronics contributed to export growth. Privatization reduced government expenditure and more government funds were saved [to build] towns and cities for rural areas. SMEs were also started by local entrepreneurs to meet local demands,” said Mohamed.

In the beginning, Malaysia’s economy was based on low wages so there was less value added, he said. “The government eventually moved away from lower wage industries and focused on IT and technology … Many major foreign IT companies came to Malaysia. This enabled local entrepreneurs to learn and produce. The expansion of these industries is what caused Malaysia’s development,” he continued.

Mohamed also launched five-year plans to ensure the coordination of national interests with policies.

Mohamed also stressed on the importance of a long-term government. “The lifespan of the government was long enough for all of this to be implemented. If a new party had to be formed every election there is no way the long term plans could be fulfilled, and no development would have ensued,” he said.

When asked what the best form of government is, Mohamed admitted that an authoritative government can also deliver and it’s easier for it on the long-term.

The problem with that type of government, he said, is that when they make mistakes, you cannot hold them accountable.

“Democracy may slow down the process, but we find that [democratic governments] are the best because if the leader is useless we don’t have to assassinate him to get rid of him,” joked Mohamed.

“It is the people who will develop the country, thus their acceptance of our policies is crucial. That’s why in Malaysia people reelected the government’s party, even though there were always opposition movements. Throughout the years, Malaysia was fortunate to be able to tackle most of its obstacles, it has managed to develop and it will continue to grow and on all accounts, life in Malaysia has improved considerably,” he concluded.

In his book, “The Malay Dilemma,” Mohamed explains that Malaysia now is faced with a new dilemma; which is corruption.

“Due to the economic growth, a lot of people in the private sector started to make money, those who have made enough money became ministers only because they have money,” said Mohamed.

Finally, Mohamed was asked how he was not corrupt during his years in power.

“Yes, power corrupts, and absolute power corrupts absolutely, but I came from a poor family, for me, the pay of a prime minister was 8000 ringgit and they paid my electricity and water bills, how much more would I want? When I was in school, I couldn’t even buy noodles, now I could feed my family and I could educate my children,” he said.

He concluded his speech by saying there is a lot to learn about power and wealth from the Pharaohs.

“The Pharaohs took their gold to their graves, but in the end somebody stole it,” said Mohamed.

CAIRO: Egypt’s annual headline inflation declined to 11.3 percent in April 2010, from 12.2 percent in March, as the annual change in food prices, clothing, furniture, transportation and hospitality costs dropped, according to data released by the government statistics agency CAPMAS.

The monthly change in headline inflation rose, however, by 0.9 percent in April, from 0.8 percent the previous month, as the monthly change in food prices and hospitality costs rose to 1.8 percent and 0.3 percent, respectively.

The urban consumer price index for April rose to 146.4 versus 131.5 a year ago, the state statistics agency reported on its website. Reuters reported that four analysts cited forecasts for urban inflation — the most closely watched indicator of prices — that ranged from 11.3 to 12.9 percent.

“We had expected annual headline inflation would decline in April to 11.7 percent, due to the base effect, with the monthly change rising to reflect the higher change in food prices in the lead-up to Coptic Easter and the start of the emergence of a shortage in meat, which reflected negatively on meat and other protein prices,” Cairo-based investment bank Beltone Financial said in a statement.

“We expect the latter factor to have a more significant effect on May inflation.”

Analysts at the firm expected headline inflation to continue declining through July, “after which it will rebound again due to expected seasonal and one-off changes expected in the second half of the year.”

Beltone forecast annual average inflation to reach 13 percent in 2010.

The Economist Intelligence Unit (EIU) also forecasted a rise in average inflation for 2010 in the “Egypt May 2010 Country Report.”

According to the EIU, the Central Bank of Egypt (CBE) has begun to move towards making inflation targeting its main policy goal; however, it will take some time before the monetary instruments are fully in place.

The CBE has been loosening monetary policy since the beginning of 2009 on the back of a gradual deceleration in the rate of inflation, which bottomed out at 9 percent in August 2009, from a peak of 23 percent in August 2008.
The CBE last cut key rates in September 2009, when the overnight deposit and lending rates were reduced by 25 basis points each, to 8.25 percent and 9.75 percent respectively. The discount rate was left unchanged at 8.5 percent.

EIU forecasts a continued increase in inflation in 2010 but a decrease in 2011.

“Given a subsequent pick up in inflation, we believe that the CBE has now reached the end of its loosening cycle. In light of the potential inflationary impact when the government resumes its program of reducing energy subsidies, we expect the CBE to starting raising interest rates again in late 2010.”

The unit predicts inflation to average 12.3 percent in 2010 before gradually falling to 9.7 percent next year.

The CBE’s Monetary Policy Committee (MPC) decided May 6 to keep the overnight deposit rate, overnight lending rate and the discount rate unchanged.

According to a press statement on the CBE website, “the MPC assesses that inflationary pressures remain subdued and that the current level of policy interest rate is appropriate and supportive of the economic recovery while consistent with maintaining core inflation within the CBE’s comfort zone in the medium-term.”

The statement added that the MPC will continue to closely monitor all economic developments and will not hesitate to adjust the key CBE rates to ensure price stability over the medium-term.

CAIRO: With a court order mandating the government to reset minimum wage to comply with the current cost of living and a rising wave of labor unrest, questions about the size of this potential increase in government expenditure and the resources and structural reforms required for it, are yielding different answers.

According to CAPMAS, 7.9 million were employed in the public sector in the beginning of 2009. The wages for government employees accounted for approximately 27 percent of government expenditure and the budget deficit amounted to LE 94,880 million in the draft budget for 2009/2010, according to the Analytical Statement of the State General Budget Draft For 2009/2010 on the Ministry of Finance website.

The wages on the other hand, even with all incentives and bonuses included, are viewed as too low to meet basic living expenses and, according to many economic studies, have failed to keep up with rising inflation, subsequently causing mounting labor unrest.

A revised minimum wage of LE 1,200 a month was proposed in a study by Ahmed El-Naggar, an economist at Al-Ahram Center for Political and Strategic Studies. El-Naggar based the wage increase on conservative estimates of the ability of government workers to acquire basic living space, nutrition, transportation and health services, a minimum of LE 300 for renting a flat in the Mubarak Youth Housing project and a minimum of LE 300 for food.

But others don’t see this proposed LE 1,200 as feasible. Doha Abdelhamid, professor of public policy evaluation in Carelton University in Canada and co-author of a study on the subject, said that the difference between the current minimum wage for government employees, which is around LE 300, and the proposed LE 1,200 is too big. “It seems that it is not really feasible since in order to make this change, the government will have to print money and this will inevitably cause inflation.”

At a public lecture, about the challenges and opportunities of civil service reform, organized Monday by the American University in Cairo (AUC), Safwat El-Nahas, president of the Central Agency for Organization and Administration, further explained why.

“Countries around the world calculate minimum wage to be around the poverty line, which is around LE 160 a month in Egypt. The government of Egypt pays around LE 400 a month to the lowest level employees, 18-year-olds who have no experience and who do not support families,” El-Nahas said.

A report published by the Egyptian Center for Economic Studies (ECES), titled “Reforming the Pay System for Government Employees in Egypt”, proposes that the minimum wage for government employees should be LE 733.2 per month compared to the officially announced minimum wage of LE 295.13.

Abdelhamind, who co-authored the study, said the calculation of this figure included more social aspects as well as average per capita GDP, like dependency of families on income earners and number of income earners in each family. “The proposed wage was calculated taking into account how much government employees would really need to provide for their families.”

However, Khaled Ali, the director of the Egyptian Center for Economic and Social Rights, the center that had filed the minimum wage case against the government, contests the announced figure the government pays to the lowest level employees per month, claiming that it is actually much lower than LE 400.

He says that the issue of funding the required wage increase can be solved by bridging the gap between the maximum and minimum wage.

“The main issue here is dealing with the huge discrepancies between minimum and maximum wages within the government sector. Some workers, like the workers in the Ministry of Local Development who are currently protesting outside cabinet, get only around LE 90 a month, while the highest ranking officials get LE 1 million a month,” he said.

El-Naggar further points to the disparity in income distribution.

“Government officials make hundreds of thousands of pounds a month through additions to their basic government salaries, including allowances, bonuses, commissions, incentives and profit-sharing. Most of this money comes directly from the government.”

El-Naggar’s study suggests that if the difference between minimum wages and the maximum allowed total wages (including additions) is reduced to 15 percent and a revised salary scale is adopted, the millions saved could be used to fund the minimum wage increase.

The ECES report echoes El-Naggar’s suggestion.

“Of course, we have used this proposed salary [LE 733.2 a month] to calculate a new wage scale for government employees with an acceptable difference between the highest paid government officials and the lowest paid workers, 14 fold. We found that in international experience, the difference should not be more than 10 fold,” explained Abdelhamid.

According to the ECES report, the ratio of minimum to per capita GNP has decreased from nearly 60 percent in 1984 to 19.4 percent in 1991/92 and further to 13 percent in 2007. When the ratio of minimum wage to per capita GNP is compared to other countries, it appears amongst the lowest. While in Turkey the rate is 78 percent, France 51 percent, Spain 26 percent, in Egypt it is only 13 percent.

The report concludes that the proposed salary structure will increase the total government fiscal cost of wages by nearly 256 percent, which would require substantial government funding. The report makes recommendations on how the government could find the necessary funding for this wage increase, which they advise should be implemented immediately. Mainly, it advises cutting back corruption in government authorities and better management of human resources.

El-Nahas pointed to some government plans to reform the civil service by ending the practice of giving the customary “excellent” performance appraisal. With basic low salaries, such appraisals are required to give employees the bonuses that could make their monthly income more compatible with the cost of living.

According to El-Nahas, another civil service reform is to stop hiring workers on temporary basis which has been cited as a major concern by labor groups, since this diminishes their social welfare benefits and bonuses.

El-Nahas also talked about stopping temporary contracts from becoming permanent, even after the work for that short-term project has ended. “This creates an unnecessary burden on government resources and is one of the main issues we are working on.”

The ECES report advised reducing military and police spending (specifically army and police perks) and channeling the cash to wages.

“The government should reduce funding on luxury vehicles and other perks for higher government officials,” said Laila ElBaradei, public policy professor at AUC and co-author of the report.

El-Nahas added that the government is planning to resort to freezing new appointments and not replacing employees who leave, as well as “reshuffling employees from over-staffed government offices to create new, more specialized agencies to deal with different issues.”

The authors agreed that by adopting these reforms, the government would be able to finance the budget increase required to raise minimum wage.

This could be a major political advantage for the current government in the upcoming elections, said Abdelhamid.