Egypt needs economic reform, but must heed warnings from the past

by Abdellatif El Menawy

Economic reform is not alien to Egypt. In January 1977, then-President Anwar Sadat tried to introduce a controversial economic reform that backfired and brought people out into the streets in protest. He was forced to scrap the whole project due to what he called the “Uprising of the Thieves.”

“The first attempt at real reform was in 1977,” said Egyptian President Abdel Fattah El-Sisi several months ago, when he was preparing the ground for the difficult economic decisions that he began to take three months later with the flotation of the Egyptian pound and the subsequent repercussions. When El-Sisi talked about the economic conditions of 1977, it was the first public acknowledgement of appreciation of the economic reform Sadat tried to set in motion.

But what really happened in 1977?

The country was emerging from the 1973 Arab–Israeli War, economically exhausted, and there was a desire to try real reform. In one of the meetings of the Council of Ministers, Dr. Abdel Moneim Al-Qaysouni, chairman of the Economic Group, spoke of the need to lift subsidies on some commodities in response to a decision by the World Bank not to lend Egypt $200 million. Al-Qaysouni said “the economic boat now rocks and can sink and there is no escaping from decision-making.” He said that Arab countries were also refusing to pay without the consent of the World Bank — any assistance would be provided only after consultation with World Bank experts. Dr. Aisha Rateb, minister of social affairs, opposed this decision to lift subsidies. Interior Minister Syed Fahmy said: “How can we surprise people with inflated prices? This affects the security situation.”

Sadat held a meeting in which Dr. Hamed Al-Sayeh, minister of economy and investments, said that raising prices was an unavoidable measure, and that any delay in doing so could expose the country to an economic disaster. But Prime Minister Mamdouh Salem held a meeting with members of Egypt’s ruling party (of which he was chairman) to explain the situation to them. They attacked the proposed reforms, and their opposition fueled the January demonstrations (the “bread riots” as they became known). Sadat was forced to backtrack on the reforms.

“The main challenge President Abdel Fattah El-Sisi faces is to clearly explain his vision of the future, and to convince the Egyptian people that his course of action is the correct one.”

This retraction, in the background of the riots, was the correct decision, although it was inevitably interpreted by some as a political defeat. Although Sadat termed it an “Uprising of the Thieves,” his associates said he was aware that the unrest was caused by the unexpected increase in prices, and the root of the problem lay in the lack of communication with the masses.

Actually, Sadat’s economic decisions in 1977 were correct, but they were not properly managed. The resulting riots were enough to dissuade subsequent Egyptian authorities from attempting to deal with the issue of economic reform.

El-Sisi’s recognition of the impact of the measures taken (then quickly retracted) by the government in 1977 meant he tried to communicate the reality of Egypt’s economic situation to the public so they would not be surprised by rapid inflation.

El-Sisi took tough measures, and had the courage to attempt something his predecessors consistently avoided. He preferred to be clear with his people in his decisions and his insistence on following through with them, because he believed that — despite the cost — it was going to benefit the country.

So the main challenge El-Sisi faces is to clearly explain his vision of the future, and to convince the Egyptian people that his course of action is the correct one.

There is no doubt that Egypt is in need of economic reform. But the process must be managed in a systematic manner that shows we have learned from the mistakes of 1977. Reform can only succeed if all Egyptians are kept in the loop and are not caught unawares.

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