Why are Egyptians getting poorer and how to stop it?

In 1957, Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS) conducted its first field survey on poverty levels in Egypt, to be conducted roughly every five years until the year 2008, and once every two years thereafter. The definition of poverty has evolved over the decades, however in their latest report in 2017/2018, CAPMAS factored in the World Bank’s definition of what constitutes a poor person — those earning $1.9 or less per day. Translated in terms purchasing power, a dollar is equivalent to EGP 5.3 per day, meaning any Egyptian earning EGP 10.07 a day or less is considered poor.

Not only that, but CAPMAS also takes into account a number of different factors specific to Egypt, like the basic needs specific to each area or governorate, and difference in prices among those areas within Egypt (i.e. Cairo vs. Asyut). With those measures, the poverty line in 2017/2018 was EGP 736 per month, while the extreme poverty line (income insufficient to meet basic food needs) is set at EGP 491.

“We use this survey to measure poverty of income, vulnerability, multi-dimensional poverty – which completes the picture for income poverty,” said Heba El Laithy, Statistics Professor at Cairo University and consultant at CAPMAS. “Multi-dimensional poverty measures varying degrees of deprivation, not just when it comes to consumption, but other factors like health, education and basic needs.”

Almost without exception, poverty levels across Egypt have steadily increased since the onset of the new millennia. The Egyptian economic reform program, which began in 2015 and included a number of austerity measures, have improved macro-economic indicators but also greatly accelerated the rates of increase in poverty. While this rate averaged at 2% over the last two decades, it hiked to over 4.7% in the two years following the implementation of the reforms program — soaring the number of Egyptians living in poverty to almost a third of the populations, at 32.5%.

“The reforms program had three pillars: lowering subsidies, liberalizing the exchange rate, and liberalizing the interest rate,” explained prominent economist Alia El Mahdi. “It’s natural for such a package to affect the prices and increase them. Liberalizing interest rate was supposed to put the brakes on inflation. But, the prices went up anyways.”

Who is getting poorer?

Contrary to previous surveys, the numbers show that urban centers, namely Cairo, Alexandria, Beheira, Portsaid and Suez, witnessed the highest increase in poverty rates during that period. With prices of gas, electricity, fuel, food, goods and services, greatly increasing in those areas, and not corresponding with a significant increase in employment in such areas, Egyptian urbanites suffered the most. Poverty rates in those urban centers soared by an average of 11.6%, revealed El-Laithy.

Those urban centers have the country’s most skilled and educated labour, for whom employment has dwindled in the past four years. Poverty rates among the illiterate, however, remain the highest in the country. But interestingly, they’ve gone down since the implementation of the reforms program, especially in Upper Egypt. This trend (increasing poverty in urban centers) is cause for major concern.

“This is scary. These are the governorates where revolutions start, and where people are most anxious because they’re more educated and more aware,” added El Mahdi. “Before the [January 25th] revolution, we surveyed the public, and have always warned, the highest degree of dissatisfaction was in urban areas and the Delta region.”

How did poverty rates in Upper Egypt decrease?

To be clear, all segments of Egyptian society saw their purchasing power dwindle as a result of the reforms program. But the figures for the extremely poor, specially those in Upper Egypt (historically the poorest in Egypt), have improved. It’s not yet a cause for celebrations as Upper Egypt governorates remain the poorest in Egypt (at 52%), but what has caused this improvement?

To explain this, we have to go back to the reforms enacted in Egypt, which opened the door for a construction boom as new cities, most famously the New Administrative Capital, are erected and roads are built to accommodate them. This also ushered in increased employment in the construction sector, the kind of jobs that are mostly unattractive to the educated middle class given their higher skill level. These jobs, however, have come to the rescue of those from Upper Egypt and the illiterate in general — the only two segments which witnessed a decrease in their poverty rates.

Add that to the fact that the cost of living in Upper Egypt is generally lower than bigger urban centers, though it has increased since 2015, and it becomes clear why poverty figures in Upper Egypt have witnessed an improvement. This, however, isn’t sustainable. As such mega projects will someday be completed and such employment no longer needed. On the other hand, jobs for the educated middle class, the growth engine of any economy, have barely budged an inch since 2015, leaving skilled labour fending for themselves in increasingly expensive urban centers, and extremely vulnerable to fall into poverty.

“Generally, the more educated a person is, the less likely they’ll experience poverty,” explained El Laithy. “Poverty rates among the illiterate remains the highest in the nation, but it has gone down between 2015 and 2018, mostly because these segments are the ones who take on hazardous and temporary jobs, which are the most available. Skilled labour don’t have much  of an opportunity to better their living standards nowadays.”

What should be done?

Simultaneous with the reforms program, the government undertook social security programs to shield the poor from the drastic effects of austerity. The Takaful and Karama pensions programs has lifted 10% of its recipients from poverty — roughly 200K families. A step in the right direction, but according to El Mahdi, this can never suffice in the fierce fight against poverty as coverage of such programs is still bound to the government’s budget limitations.

“Education and health are very important. Education has to be developed in a way that the poor father can send his children to school without having to bear a financial burden so that their income isn’t affected,” explained El Mahdi. “Imagine if we have a good quality education that doesn’t cost poor families anything? Same goes for health, imagine if we have universal health care for poor people. That’s how you increase a family’s income and lift it out of poverty.”

“Another important component is transportation infrastructure. Why do you think girls drop out of education more than boysafter primary or preparatory stages? Because there wouldn’t be a secondary school in the village, only in the closest urban center. So their families don’t send them because they’re scared of any dangers they may face along the way,” further elaborated El Mahdi. “But if there are safe transportation means, they would go to school. Same goes for those who want to find a job; if there are safe and convenient transportation methods, that are also affordable, people would be more mobile to go pursue jobs in other cities and governorates. We could employ the private sector to help with that. Mobility is crucial to education and jobs.”

The information for this article was obtained from a panel discussion between Dr. El Mahdi and Dr. El Laithy, hosted by the American University in Cairo’s Alternative Policy Solutions initiative on October 16th, 2019.

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