VZCZCXYZ0001
PP RUEHWEB

DE RUEHEG #0394/01 0441537
ZNR UUUUU ZZH
P 131537Z FEB 07
FM AMEMBASSY CAIRO
TO SECSTATE WASHDC PRIORITY 3565

UNCLAS CAIRO 000394 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR NEA/ELA, NEA/RA, AND EB/IDF 
USAID FOR ANE/MEA MCCLOUD 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EG
SUBJECT: POOR EGYPTIANS YET TO FEEL BENEFITS FROM ECONOMIC 
 
REFORMS 
 
Sensitive but unclassified, please protect accordingly. 
 
¶1. (SBU) Summary:  Chronic low wages and lack of opportunity 
has lowered working-class Egyptians' motivation to work and 
contributed to discontent with the government's economic 
policies.  Despite impressive macroeconomic improvements 
since the Nazif administration began its economic reform 
program, the widespread perception is that the rich have 
benefited while the poor continue to suffer.  The Nazif 
administration seems to realize the need to target further 
reforms toward the poor and has pledged government action; 
however, significant results from the needed reforms will 
take years to materialize.  End summary. 
 
---------------------- 
Years of Economic Woes 
---------------------- 
 
¶2. (U) Egyptians have long faced chronically low wages, high 
unemployment, widespread corruption, and a faltering 
education system.  Although there have been fluctuations, Dr. 
Mona Said, Assistant Professor of Economics at the American 
University in Cairo, judges that the median wage, currently 
2.1 LE (about 37 cents) per hour, is actually lower in real 
terms than it was in 1988 (2.25 in 2006 LE, about 39 cents). 
Unemployment has consistently been above 10% (although it 
dropped to 7.8% in 2006), and workers struggle even to find 
low-paying jobs.  The pervasive culture of corruption in 
Egypt also stifles opportunities for legitimate advancement. 
The Egyptian education system perpetuates the problem since 
it does not adequately train students even in basic skills. 
 
¶3. (SBU) Contacts ranging from business leaders to educators 
to operators of NGOs uniformly say that years of such 
obstacles have made the average Egyptian less motivated to 
work and more pessimistic about his/her future than at any 
time in recent memory.  A telling example comes from Mohamed 
Ghoneim, who told econoff that one of the main reasons he 
founded his NGO, the Egyptian Society for Combating 
Unemployment, is to instill motivation, a sense of hope, and 
an entrepreneurial spirit that his beneficiaries lack from 
years of unemployment.  Dr. Alia El Mahdi, director of the 
Center for Economic and Financial Research and Studies at 
Cairo University, told econoff that, due to poor job 
prospects and an overburdened education system, she had never 
in her many years of teaching seen as low levels of 
motivation among her students as she does now. 
 
--------------------------- 
Backlash Against Ruling NDP 
--------------------------- 
 
¶4. (SBU) Such economic woes have contributed to discontent 
with National Democratic Party (NDP), and by extension GOE, 
economic policies.  A leading Egyptian economic researcher 
and NDP member told the Pol-Econ Minister Counselor that the 
2006 results of the NDP's annual internal poll on Egyptian 
attitudes towards the party show that, in general, Egyptians 
have a "very bad" opinion of the NDP.  The academic went on 
describe the average Egyptian's chronically poor economic 
situation, saying that pessimism over pervasive poverty may 
be one of the reasons why the NDP faced so much opposition in 
the 2005 parliamentary elections.  In the aftermath of these 
elections, Prime Minister Nazif reshuffled his cabinet and 
told the Ambassador that the focus of his new government 
would be on service delivery in the health, education, 
transportation, and housing sectors. 
 
--------------------------------------------- -- 
Reforms - Good, But Perceived to Favor the Rich 
--------------------------------------------- -- 
 
¶5. (U) Macroeconomic indicators have mostly edged up since 
the Nazif administration began its economic reforms in 2004. 
Real GDP grew 5.6% in 2005 and 6.9% in 2006 (preliminary 
figures as of January 10, 2007).  Unemployment decreased from 
11.7% to 7.8% in 2006, according to the 2006 USAID-funded 
Labor Market Survey, with the biggest reduction coming in 
rural areas.  Additionally, many business leaders say that, 
although there are still many problems, doing business in 
Egypt has become much easier since the beginning of the Nazif 
administration. 
 
¶6. (U) However, overall initial gains from these reforms have 
been in capital, not labor, intensive sectors, supporting the 
perception that the rich are benefiting while the poor 
continue to suffer, and re-affirming innate suspicion of GOE 
economic policies.  Dr. Samir Radwan, Managing Director of 
the independent Economic Research Forum, was quoted in the 
 
press as saying that sources of growth have been natural gas, 
exports, tourism, the Suez Canal, and privatization proceeds, 
leaving out agriculture, which accounts for Egypt's lowest 
wage workers.  Additionally, the government uses a huge part 
of gross national income to cover its budget deficit.  All 
told, Radwan estimated, 40-50% of the population has not 
benefited from the increases in national income. 
 
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Comment 
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¶7. (SBU) The Nazif administration is well aware that it has 
both substance and image problems in the economy.  Its 
primary focus remains the substance, and 2006 growth figures, 
combined with 2007 projections, offer some positive news. 
However, experts agree that reforms on the scale that the GOE 
is undertaking will take years, perhaps decades, before 
effects can be felt across the economic spectrum. 
RICCIARDONE