WILL PEACE AND PLENTY FLOW TOGETHER
Cairo — In the quick currents of the Nile, dark, silent river of civilization, are the reflections of a score of construction cranes. They tower over new skyscraper hotels, luxury office parks, and apartment blocks that are crowding the ancient banks in downtown Cairo.
In the dusty, tropical air rises the sound of a booming city at work. Honking traffic inches along congested boulevards, jackhammers and riveters meet pavement and girder with purposeful rattling, and street vendors chant the merits of their meager wares. And five times a day muezzins call Cairenes to prayer.
Nearby, in Tahrir Square, is a circular elevated walkway half a mile in circumference with stairways feeding into it from every direction. At any hour, day or night, summer or winter, a fair sampling of Cairo's 6 million travel the circle. Scruffy villagers in their ankle-length gowns are elbow to elbow with Arab boys dressed like disco kings. Pinstriped Levantine merchants hurry past tall, bronze couples of Nubian ancestry in their bright block-print wrappings. Veiled women -- and those in passable imitations of Givenchy's latest -- shepherd children through the crowds.
Economic boom. Population boom. The question is, can the first contain the second?
From the air, the Nile valley is a long green dandelion, rooted in the Sudan, twisting up through brown, forbidding desert, and flowering in the rich, green delta marked by Cairo, Alexandria, and Port Said.
Demographically, too, Egypt is this figurative dandelion rather than the expansive Texas-size country on maps. The 45.7 million Egyptians clinging to this thin strip of fertility --and growing at a rate of 2.8 percent per year -- constitute the central economic and political problem of Egypt. It is simply too big a population, though it has grown accustomed over the ages to bread and circuses, and could, by taking to the streets, bring down a government that does not pay sufficient attention to it.
In the 1960s, under Gamal Abdel Nasser, father of "Arab socialism," Egypt tried to manage its teeming, colorful, largely impoverished economy through central planning and management. But the chaotic pluralism of the people, their good-humored ma-leshm (roughly: "never mind") attitude, could not easily be disciplined. Nasser succeeded only in alienating outside investors (other than the Soviets) and fattening up an already legedarily hefty, 4,000-year-old bureaucracy through attempts at state economic control.
The 1967 "Six-Day War" with Israel and the subsequent war of attrition took their toll, depriving Egypt of the Suez Canal and chewing up one-fourth of its budget per year for military spending.
For the past decade, however, Nasser's successor, Anwar Sadat, has pursued not only a novel political course but also has brought in an "open-door policy" and has promised to wean the nation from subsidies, divest state-controlled industry, and promote an entrepeneural class. There are two major factors which have helped Sadat in this colossal task:
* Peace: By making peace with israel, Sadat was able to ease the tremendous expense of maintaining combat-ready armies on the northern border.
Egypt regained use of the Suez Canal (actually wrested it back in the 1973 war but was guaranteed it would remain operational by coming to terms with Israel). The canal produced $720 million in 1980 and is expected to earn even more this year because dredging now enables it to accommodate supertankers. Canal fees were raised at the beginning of the year to maximize profits.
Peace also qualified Egypt for a number of international loans, credits, and investments. The United States government alone contributes $2 billion per year in economic and military aid, the largest amount the US pays any country other than Israel.
But because that peace resulted in Egypt's ostracism from the other Arab states (most important, Saudi Arabia), Sadat has not been able to maximize the benefits of peace by producing a more noticeable "peace dividend" for his people. Thus we see continuing Egyptian attempts to draw closer to the Arab fold. Yet Egyptian officials, such as Deputy Prime Minister of Economics and Financial Affairs, Planning, A. A. R. Abdel Meguid, say firmly: "The legacy of the recent past must be shed and must not be bridged to the future." Egypt's dearly bought peace is here to stay, they aver.
* Oil: Exploration in the Red Sea region turned up significant oil finds in the 1970s. Egyptians say they now have almost 3 billion barrels of proven reserves and estimate there are a potential 12 billion barrels -- roughly akin to the find on Alaska's North Slope.
Impartial economists believe this may be governmental exaggeration but say the major oil companies seem optimistic enough (given the industry's traditional pessimism). Virtually the entire Gulf of Suez is now under contract.
The vast and desolate Western Desert is being explored, with the likelihood oil will be found there also. So far only one major strike has been reported, but the crude is among the purest in the world.
Last year Egypt, produced only 643,000 barrels per day of oil, but the government hopes to be pumping 1.8 million barrels per day by the mid-1980s.
OPEC price increases in the 1970s have indirectly aided Egypt, a non-OPEC country, by allowing it to charge the going rate for oil. Moreover, higher Egyptian production has shielded the Egyptian economy from the effects of oil inflation by allowing the country to save on imports.
Here, however, the subsidy tradition has threatened to wipe out economic gains. The government underwrites 80 percent, on average, of the cost of petroleum products. Egyptians pay only 6 percent of the world price for fuel oil, 30 percent of the cost of gasoline. The rpice of premium gas is being raised to the world level this year. Fuel oil will rise similarly over the next five years.
Economic developments have worked so much in Egypt's favor the past few years that in 1980 Egypt ended up with a $1 billion balance-of-payments surplus. This turned out to be a mixed blessing, however. The International Development Association in February balked at providing "soft-lean" financing to Egypt because of the healthy payments surplus. But Egyptian officials called this the "penalty of success," argued that great infrastructural projects still needed financing, and won a renewal of the $2.9 billion from aid donors that it had last year.
Like Great Britain with its North Sea oil, Egypt's modest treasure and its bright short-term outlook have bought time. Sadat is trying to use that time to stimulate the private sector. What he faces, however, is a tradition of bread and circuses that will not easily be broken. Bread, in fact, is a case in point.
The government spends $3 billion a year -- 25 percent of its budget -- to keep food prices artificially low, an ingrained practice that has hampered international monetary aid and discouraged internal investment. Bread, sugar, and other staples come under direct state control. Thus, when supply is short or prices begin to rise, the government is directly blamed -- and with Egypt's population, directly in jeopardy.
When Sadat attempted to reduce subsidies in 1977, Egyptians took to the streets and forced him to rescind bread price increases. This was a sobering experience for Western-oriented Egyptian economists.
Still, with clever planning, Sadat's weaning program has won some recent gains. Last year, instead of announcing bread price increases, the government brought out a new bread loaf that was larger and whiter than the standard baladam bread Egyptians eat. It also cost twice as much. Baladam bread was made with coarser (but some say more nutritious) flour and remained at the old price. The government then altered the product mix so that eventually the higher-priced loaf (which was selling better anyway) made up 75 percent of all sales.
"You have to admit that was brilliant," a young Western-educated economist says. "It was a way of making the necessary economic adjustment without actually causing the poor to go without."
Sadat also succeeded last fall in dampening prices and demand for red meat. He declared September a meatless month, and most Egyptians went along with the idea (which was easily managed since the state controls slaughterhouses). Government-controlled foreign trading companies dumped white meat and fish on the market to compensate. When the month-long fast ended, there was plenty of low-priced meat in time for the Muslim feast of Idul-Adha.
These were, indeed, well-conceived and managed economic adjustments. and it could be argued that they might be the stuff that builds an innovative nation. But in the long run what is needed is not the quick solution but an overhauled private sector. The Egyptian government is committed to this, and already the economy is being nudged along toward market-orientation.
The government is moving toward food stamps as a way of giving more selective food subsidies on items such as poultry, flour, rice, and sugar. This should cut down the welfare bill by basing subsidies on income. Then prices can rise to approximate the true market value.
A walk through downtown Cairo shows that entrepreneurs are operating in second-and third-story walkups, running light manufacturing firms, import-export companies, and professional services. Many of these businessmen got their start with money earned overseas.
Tax reform, population control, and greater agricultural efficiency also will help divesify and upgrade the economy.
But the subsidies will not go away overnight.
"You must understand," an Egyptian official says, "you cannot have an economy without political stability. They are two sides of the same coin."
Deputy Prime Minister Meguid capsulizes the Egyptian goal this way: "An alert watch over the mix of policies to be applied, a determined strengthening of the institutional underpinnings for the emerging equilibrium, a careful balancing of the impeding and impelling force across all strata of the social, economic, behavioral, and political fabric of society."
Around Tahrir Square, out in the dusty, city-edge slums, in the sparkling new buildings along the Nile, Egyptians are watching. With peace on their frontiers , the challenge for Egyptians is the economy.