With failing public policies: Egypt underway hyperinflation

On February 9, the Central Bank of Egypt announced that the country’s core inflation rate had risen to 31.24 per cent on an annual basis in January, up from 24.4 per cent in December 2022, while consumer price inflation in the country’s cities, according to central bank data, jumped higher. Expected annually, it came to 25.8 per cent from 21.3 per cent in December 2022, the fastest rate in over five years. The difference between actual inflation and commodity price inflation is that the prices managed by the government, such as rice previously, are not considered. The cost of rice, for example, doubled, bringing the price of a luxury kilo to 28 pounds!

Thus, we have monitored prices and asked citizens, as some don’t agree with these official figures. Consumers and merchants alike confirm that price inflation in most commodities reaches 100 per cent, while some exaggerated and said that it is much more than 100 per cent. This enormous wave of high prices comes with several pound devaluations, which exceeded 30 pounds per dollar in the official market. This makes us ask two main questions in this report. First, is this the real reason for this inflation? And second, what are the effects of this high price on citizens?

The real reason for inflation

The price increase in recent months was usually justified by the accumulation of goods that are prohibited from customs release due to the lack of dollars at a time when the government announced, last November, a funding gap of $16 billion. According to the government policy, the solution was more borrowing, which reached an agreement with the International Monetary Fund to obtain a loan of $3 billion, in addition to Gulf pledges to deposit $20 billion in Egyptian banks in exchange for profitable assets that they buy from Cairo. This agreement came as a temporary release of goods in customs.

The Egyptian government announced, a month ago, strong efforts to release the goods. At that time, it was announced that $5.3 billion was still pending after nearly $14 billion was released last December, but the matter changed later. Therefore, the previous releases need to be revised, with the Central Bank’s policies continuing to abandon its role in providing dollars to importers. This happens at a time when it is customary for goods to enter Egyptian ports on an almost daily basis, which increases the crisis. But how it increases? It happens whether with the continued prevention of the provision of the dollar or the market’s fears of supply shortage disturbances and the attempt of importers to reduce their losses as much as possible at the expense of the market. This resulted in an excellent inflation rate because of all these disturbances when the government was initially limiting the use of the dollar to what was necessary. For example, the most significant commodities that the government deliberately released were fodder, but this was not enough, so the prices of chicken and various types of meat in the country continued to rise with an extraordinary daily increase! This shortage prompted cattle breeders to feed them on rice, considering another crisis, which meant complex problems, when the confirmation came that allowing releases was limited to production materials. Still, almost nothing came out of the entirely manufactured goods.

The army takes advantage of the crisis

During the president’s inauguration of the second phase of a food factory detained by the army, he said: “The quantity or the project in this way will not cover a large percentage of the population’s consumption, but if we want to achieve a balance in the prices of products, which are food for all citizens in all its segments, then we need a number bigger than these products, and this is something you should study.” During the past two days, accounts on social media – expected to be linked to the security services – have been active in promoting goods available in “Sun Mall”, and the latter are commercial markets within the General Services Authority of the Armed Forces. Its branches are located in more than 16 governorates, with its horizontal expansion in many branches. In every governorate, especially in Greater Cairo and Alexandria, there is a promotion of essential or non-essential commodities from the army’s Silo Factories complex in Sadat City, Menoufia.

The most prominent promoted commodity was chicken, as the price of a live chicken reaches more than 90 in the market, while frozen chicken imported from Brazil is being promoted at the cost of 90 pounds per chicken weighing 1300 grams. In light of the decline in frozen imports, we can ask ourselves an obvious question by more than 80 per cent: Where did those commodities come from? And is it in favour of the army companies? From the preceding, the government’s approach will be to replace fully industrial imported goods with others produced by army companies, with a limited allowance for goods needed by the market, from cheap markets provided by the armed forces, which means that dollars will be partially used for necessities, allowing for the preservation of foreign exchange as much as possible with army companies taking advantage from the crisis!

This benefit may be a source of widespread anger, but there are other solutions for logistical reasons. The first of these reasons is the army companies’ inability to cover the market’s needs with their relatively low prices. Therefore the flow of these goods will be instead bought by a small percentage of citizens, in addition to the question of quality and the extent of the gap between the quality of army products and the quality of imported products and private sector products. Even the president said in the same opening, “Anything that will be done will remain following international standards and the Food Safety Authority.” In addition, the private sector is affected by such a process, which mainly involves hundreds of thousands of workers, creating a vicious circle! The question here is how long it will continue at a time when it will take little time to prove its failure.

The citizens pay the price

Although this approach will benefit a percentage of citizens who can buy like some middle-class strata, the question remains: what about those who cannot buy in the first place? The rise in commodity prices directly affects the lives of citizens, and changes began to appear on the surface. Citizens we spoke to confirmed new sightings in the Egyptian street. First, the expansion of non-professional beggar workers from social strata free from want as having treatment or paying rent is impossible for them, and second the impossibility for many citizens to pay various bills, taxes, etc. Another problem is that the general economic situation created muffled anger. There is no political way to express it because of the repression, as even the security forces arrested those who mocked the rise in commodity prices in the first place, which increased the political and social crisis. These trends and attempts to find a solution are based mainly on the government’s performance, defence of its economic path, and adherence to it. The government has only two hopeless solutions, the provision of foreign exchange from borrowing and spending!