VZCZCXYZ0001
PP RUEHWEB

DE RUEHEG #2279/01 3041349
ZNR UUUUU ZZH
P 301349Z OCT 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 0753
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS CAIRO 002279 
 
SIPDIS 
 
DEPT FOR NEA/ELA 
TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN EINV EG PGOV
SUBJECT: EGYPT TRIES TO GET SMARTER IN DELIVERING FOOD 
SUBSIDIES 
 
¶1. (U) Summary: The Egyptian government has expanded its 
smart card pilot for the delivery of subsidized food 
products.  According to the Ministry of Social Solidarity 
(MSS), which is responsible for the delivery of subsidies, it 
has expanded its pilot smart card program, which was first 
piloted in Suez, to eight governorates and plans to complete 
its roll-out throughout the country by the end of 2009. 
According to the GOE, the smart card system is allowing the 
government to collect improved data on the demand for 
subsidies while at the same time helping realize a 20% cost 
savings as a result of improvements in the supply-chain. The 
improved data and infrastructure of this program will 
certainly help modernize the system that has been in place 
for decades.  Nevertheless, the subsidy system remains badly 
flawed and does a poor job of targeting the most needy. 
Serious structural change will require tough choices and 
political will which still appears a long way off. End 
Summary. 
 
¶2. (U) Noha Kaptan, Information Infrastructure advisor to the 
Minister of Social Solidarity (MSS), told Econoff that the 
GOE ration smart card pilot had been expanded to eight 
governorates in Upper Egypt and the Delta and that the 
government planned to complete the smart card roll-out 
throughout the country by the end of 2009. An estimated 11 
million households, representing more than 50 million 
Egyptians, are eligible for and participate in Egypt's food 
ration program. This program provides substantial discounts 
of between 50-90% on a basket of core grocery products. 
These products include rice, sugar, tea, cooking oil, 
lentils, and pasta. 
 
¶3. (U) The new smart cards will ultimately replace the paper 
ration card system that has been in place for over half a 
century.  With a paper ration card, record-keeping is done by 
the individual grocer by hand in a ledger book.  When a 
subsidized product is sold, the shopkeeper writes the 
customer and purchase details in the ledger, and the entry is 
countersigned by the customer.  At the same time, the grocer 
signs the customer's paper card to indicate that they have 
received their monthly allotment. Supply and demand were 
rarely matched up and most grocers received their monthly 
shipments of ration goods without regard to how much of their 
stock had been sold.  Under the smart card system, the 
transaction is recorded at the point of sale, and both the 
customer's smart card and the grocer's smart card system are 
updated automatically.  Only after the grocer's transactions 
have been downloaded by the MSS are additional inventory 
purchases authorized.  The benefits of better record-keeping 
help to reduce costs by better managing supply and delivery 
of rationed products while at the same time improving 
oversight to reduce fraud. 
 
¶4. (U) Kaptan told Econoff that in the pilot governorates 
implementation of tracking via the ration smart cards had 
reduced demand by 20%--probably representing the amount that 
was previously being skimmed off the top of the paper-card 
system. When rolled out nationwide, this could potentially 
save the GOE over LE 180 million ($32 million) annually. In 
addition to better food ration delivery, Kaptan pointed out 
this pilot program is also being used to deliver certain 
government pensions.  The recipients of these pensions are 
able to take their smart cards to the post office each month 
to receive their payments. 
 
¶5. (U) Implementation of smart card infrastructure could 
ultimately enable the GOE to deliver subsidized food products 
through virtually any grocery store rather than through the 
specialized ration products and government-owned stores.  In 
addition, any future implementation of a cash transfer system 
to replace the ration regime could be more easily 
facilitated. According to Kaptan, these types of initiatives 
are not in current MSS planning. She pointed out that there 
are over 17,000 ration-card groceries in Egypt, and there is 
no plan to shut them down.  The goal, she said, of the smart 
card implementation is efficiency rather than structural 
change. 
 
¶6. (U) Food subsidies are a tremendous budget line for the 
Egyptian government--amounting to over $3.1 billion last 
year--and the leakage from the system is astounding. There 
are no reliable estimates for the amount of subsidized food 
that is stolen or sold at prices higher than the subsidized 
rate, but even the government admits the problem is 
widespread.  In a recent example, in mid-October the press 
reported that Egyptian customs officials had seized three 
containers containing 55 tons of subsidized rice that was 
being exported to Kuwait. 
E 
 
¶7. (U) It is important to note that the subsidized bread 
program remains untouched by the current initiative.  Badly 
in need of reform, the subsidized bread program is 
politically sacrosanct in Egypt. This program, which is 
managed separately from the food ration program, is available 
to all Egyptians regardless of their economic situation, and 
represents around 70% of the government's expenditure on food 
subsidies. 
 
¶8. (U) Comment: There is tremendous sensitivity around the 
issue of subsidies in Egypt. In 2007, President Hosni Mubarak 
called for a national dialogue of subsidy reform, though 
there has been little follow through.  Most government and 
private sector economists agree that reducing the fiscal 
burden of subsidies is a necessity.  There is also 
substantial consensus around better targeting of benefits to 
make sure that the subsidies are reaching the intended 
recipients.  Initial results of the smart card system for 
food subsidy delivery are positive, and the resulting 
reduction in waste appears very substantial. By putting the 
smart card infrastructure in place, the government will be 
able to collect much better data to support delivery and 
targeting of subsidies and may have more flexibility as it 
tries more innovative ways of providing much needed 
assistance to Egypt's poor.  That said, much of the heavy 
lifting of subsidy reform remains to be done. 
SCOBEY