MB PLATFORM CALLS FOR "MIXED" PUBLIC-PRIVATE ECONOMY

UNCLAS CAIRO 002148 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ELA, NEA/RA USAID FOR ANE/MEA MCCLOUD AND DUNN USTR FOR SAUMS TREASURY FOR NUGENT AND HIRSON COMMERCE FOR 4520/ITA/ANESA/OBERG E.O. 12958: N/A TAGS: ECON PREL PGOV EAID ETRD EG SUBJECT: MB PLATFORM CALLS FOR "MIXED" PUBLIC-PRIVATE ECONOMY REF: CAIRO 2147 -------------- Summary -------------- ¶1. (SBU) In preparation for the Shura Council elections, the Muslim Brotherhood (MB) issued a platform that included an extensive economic component. The document, our first in-depth look at the MB's economic views, criticizes capitalism and free markets in general, particularly the GOE's economic reforms, including privatization and what they consider to be the resulting corruption. The MB cites poverty as Egypt's main socio-economic problem, and believes it can be solved through comprehensive development. The state would play a large role, driving investment, growth, and poverty eradication. Many of the policy suggestions are similar to current GOE policies, but the MB emphasizes the role of the state in protecting citizens from market-driven approaches. The government would ensure social justice through Islamic law and values, including redistribution of wealth through charity (Zakat). The platform does not include many concrete suggestions for accomplishing its objectives, but does indicate that its authors have thought seriously about the problems facing the economy. -------------- Criticism of Free Markets... -------------- ¶2. (U) The recently issued MB elections platform is highly critical of the government's free market reforms, blaming them for exacerbating poverty and income disparity. The criticism begins with the "Open Door" policy of the 1970s, noting that this policy resulted in a "consumption culture" that "distorted the culture of production." In the 1990s, moves toward "market-economics or the so-called Capitalist economy" led Egypt away from industrialization to services, an evolution that has "negatively affected Egypt's development." The government's abandonment of its role as economic planner in the 1990s led to external "forces," such as the IMF and the World Bank, assuming undue influence over Egypt's economy. The current reform program, coupled with heavy reliance on Suez Canal revenues, tourism and remittances, make Egypt more vulnerable to external shocks and move the country further away from "economic independence." -------------- ...especially Privatization -------------- ¶3. (U) The platform's strongest criticism is aimed at the GOE's privatization program. The MB argues that privatization of public companies has not created new investment, as only successful companies have been sold and the proceeds used to pay early retirements and to finance failing companies. Moreover, the MB argues that "the private sector has deteriorated in Egypt," and is not capable of managing the privatized companies. The MB calls on the private sector to engage in more "risky" economic activity that adds new investment to the economy, rather than buying successful, established public companies. The platform also claims that the current administration's handling of privatizations has led to increased corruption through non-transparent assessment of value and politically-motivated awarding of sales contracts. While critical of the GOE's handling of privatizations, the platform is more nuanced towards privatization per se, arguing that the government must ensure that privatizations are carried out in a manner that maximizes return to the state, adds investment into the economy, and precludes corruption. ¶4. (U) Turning to the social impact of privatization, the platform also calls for creation of "special funds" for employees who retire before the legal age of retirement, "job creation" for displaced workers, "job training" programs for employees with outdated skills, and "soft loans" for displaced workers who would like to engage in private economic activity. There is no discussion of how to fund or implement these suggestions. -------------- Poverty Eradication -------------- ¶5. (U) The MB platform identifies "poverty and poor living standards" as the basis of the "social crisis" in which Egypt finds itself. It calls for "comprehensive, sustainable development," based on freedom for the individual and "balance in distributing benefits of development." The MB also argues that poverty is the cause of extremism. The platform notes that "Islam has always targeted the eradication of poverty and maintenance of social justice through mutual social responsibility to prevent exploitation and monopoly. Sharia allows the ruler to take excess property from the rich and give it to the poor and needy to prevent accumulation of wealth only in the hands of rich people." ¶6. (U) The MB's suggestions for eradicating poverty include, inter alia: - Harnessing the Muslim "Zakat" or charity tithing, to create new jobs and provide training, rather than traditional "consumer goods that only meet short term needs and do not ameliorate poor living standards..." - Organizing a social role for business that balances public and private interests; - Redistributing income to ensure justice and guarantee that every individual gains in return for effort; - Guaranteeing vital services like health, food, education and housing in order to improve living standards; - Activating idle state assets to create jobs without creating new expenditures; - Reviewing the policy of privatization and maintaining successful public companies, while investing in labor intensive public projects; - Improving the investment climate and eliminating bureaucratic impediments for the private sector; - Providing soft loans, with easy application procedures; - Making good use of FDI and stopping the sale of properties, especially in the field of mining, to foreign investors, drawing on the experience of Southeast Asian countries; - Avoiding the "manifestations of luxury and excessive consumption;" - Sanctifying the value of work to avoid corruption and bartering; - Controlling prices of some items through a "special apparatus." -------------- Public versus Private Sector -------------- ¶7. (U) While the platform envisions more state intervention in the private sector than does the NDP's, it does include some reasonable "level the playing field" language of the state's role in regulation: the state "should protect against private sector monopolies, fund projects and produce goods that the private sector will not, and regulate contracts and exchanges." In regulating the private sector, the MB would foster competition, "which can never be attained without government control," and encourage economies of scale. The platform maintains that the current government has not fulfilled its regulatory role due to "lobbies existing inside and outside power." -------------- Development, Development, Development -------------- ¶8. (U) The platform calls for a national development plan, to be developed by higher institutions of the state, such as the Shura Council, and the specialized national councils. Drawing on the experience of other countries, the plan would focus on proper use of natural resources, moving development out of the Nile valley, and undertaking specialized programs, such as nuclear energy and space exploration. The national development plan would have the overall goal of economic self-reliance for Egypt, and "encourage saving and local investment, (and) Arab, Islamic and international investments in development." On this latter point, the platform calls for integration with "Arab and Islamic countries, specifically Sudan and Libya." The MB also supports the right of "citizens who live abroad" to participate in Egypt's development. This may be recognition of the importance of Egyptians working overseas, who are a major source of income from remittances. ¶9. (U) Women are highlighted as key to development. The platform notes that "she (woman) has full and independent financial identity," and the MB would remedy discrimination by "improving legal protection for working and rural woman in particular who (are) denied labor rights by legislative and administrative bodies." Other suggestions include: eliminating female illiteracy, particularly in rural areas; guaranteeing women's security, including on transportation and at work; and providing small loans for poor women financed by Zakat. With regard to children, the platform does not address the current state of child labor, but focuses on "rehabilitating children who entered (the) labor market during their early years." The platform doesn't specify any concrete steps to bring about protection of children. -------------- Nothing New Under the MB Sun -------------- ¶10. (U) Most of the MB's policy prescriptions for development and poverty eradication are similar to policies advocated by reformers in the GOE, most of who are NDP members. The difference is in emphasis - the MB platform is clearly geared toward the poor and disadvantaged, promising them a better living standard guaranteed by a social safety net, rather than the NDP's promise of greater opportunity for all through private sector-led economic growth and job creation. The MB does, however, reference the positive experience of several Southeast Asian countries with FDI, demonstrating awareness that an investment regime welcoming of foreign investment can benefit the country. This reference is offset, however, by the call for "economic self-reliance." On self-reliance, the platform states "we should be aware that external loans and aid is not a magic solution for all problems." Through increased domestic saving and good use of natural, financial and human resources, the MB believes Egypt can rely less on foreign investment. The platform also calls for FDI to comply with the national development policy, and not "disregard social, economic and cultural potentials." -------------- MB Makes Socialism Swing Islamic -------------- ¶11. (U) In calling for a "mixed" economic model, with regulated free enterprise balanced by public intervention to bring about social justice, the MB platform is essentially a variation on the European economic model. The unique feature is invocation of Islam, rather than secular, egalitarian motives, as the catalyst for the government's efforts to bring about social justice. The message seems to be that while the secular socialist model of the Nasser era failed, Islamic government planning, taking the private sector into account, can succeed. ¶12. (U) Under Islamic law, the MB believes corruption can be eliminated in all realms, economic, social and political. The main policy prescription is implementing the rule of law for government and business activity. While the NDP platform is similar in its advocacy of transparency, the MB line takes aim at the ruling party's lack of transparency. Islamic law, according to the MB, ensures the right of the governed to hold their representatives accountable, as "public posts are for service rather than superiority, duty not honor." The platform criticizes application of "unwritten" laws, including "patronage, corruption and the absence of transparency," and includes some good ideas to combat corruption, e.g., the need for a law requiring high ranking officials to declare wealth, properties and tax returns, a transparency measure undertaken in several developing/emerging countries. ¶13. (U) The platform also strongly criticizes the move to "consumptive" industries, and calls for production of "machines and technology," and an SME development strategy. Although the emphasis is on old-style heavy industrial development, the platform mentions SME several times, implying an awareness of the importance of small business to development. Interestingly, the platform also identifies attainment of a "knowledge economy" as one of the main development goals. A knowledge society would allow "rebuilding of understanding and values among Egyptian citizens." -------------- MB Views on Economic Sectors -------------- ¶14. (U) Scientific research: The platform sets the goal of creating a meritocracy in scientific research, aiming to make Egypt a leader in scientific research. This would be attained by devising a comprehensive, integrated plan for all research institutions. The plan would be integrated with production, and education with labor markets, to create research projects that solve problems specific to Egyptian society, rather than "importing" solutions that may not suit Egypt. Arabic would also figure prominently in the development of educational curricula. ¶15. (U) Health sector: The MB's goal is universal health care, though the document does not specify how this would be funded. The MB would also develop the pharmaceutical industry, focusing on manufacturing medication for "heart diseases, diabetes and cancer." The platform states that there should be "domestic substitutes for foreign drugs," and continued government control of medication prices. It also calls for linking licensing of medication to the manufacturers; establishing labs to test drug efficacy; and affordable pricing policies. ¶16. (U) Environment: Again, the platform calls for creation of a national council, with emphasis on water quality and use of resources. A separate council would be established to protect the Nile River. They propose increased regulations for polluting companies and end users to reduce air, water and noise pollution levels. Noise pollution would be reduced by regulating use of amplifiers in public places (an interesting point, as it is mainly mosques that use amplifiers in public places). ¶17. (U) Urban development, housing and utilities: The platform is highly critical of private sector monopolies on construction, and argues that this monopoly focuses the construction sector on luxury, rather than middle or low income housing. The platform focuses on the large stock of empty housing, especially in Cairo, which could be used to relocate poor people living in cemeteries, mosques and overcrowded slums. The MB claims "85% of the total number of families in Egypt and about 25% of the total census, equivalent to 19 million people, are living in uninhabitable housing and slums." To rectify the problems, the platform suggests, inter alia: designing "creative," subsidized low income housing that utilizes local materials; implementing policies that foster mobility, depending on age, needs and other factors; financing through Islamic estate financing; and restructure estate taxes to discourage building of luxury housing at the expense of middle and low income housing. ¶18. (U) Transportation: In this sector, the platform calls for an inter-modal strategy, i.e., enhanced coordination of road, rail, marine, and aviation - linked by leading ITC technologies - to maximize transport efficiency. Although not stated in the document, this strategy is currently employed by some of the most agile of the developing economies (e.g. UAE, South Africa, etc.) and recognizes that the private sector is the only possible source with the flexibility and finance to enact an effective transport system. While the Ministry of Transport is currently trying to develop rail and river freight/cargo, both modes are highly underutilized. The MB platform recognizes that this leads to overuse of the crumbling and dangerous road network, a cause of both increased costs/inefficiencies as well as traffic-related fatalities. The platform also highlights the GOE's poor record on road safety. ¶19. (U) Communication and information: The platform calls for greater competition in the mobile market, but without increasing the number of players. The MB are concerned that Egypt does not have enough control over its ICT industry, however, and the platform suggests adding state-owned enterprises to the current private sector companies in the field, to increase national security. Other suggestions include a national program to develop technology components from design to implementation, controlled by Egyptians, to limit foreign meddling; expanding Egypt's Internet infrastructure; and establishing an internal (Egypt-only) Internet to complement the external one. ¶20. (U) Agriculture, Irrigation and Animal Production: Again, the platform calls for a national plan for self-sufficiency in agriculture. It identifies several weaknesses in the sector, including improper pricing policies, outdated technology, poor irrigation, and lack of agricultural credit. Self-sufficiency in agriculture will improve the overall nutrition of Egyptians. Specific suggestions include: developing agriculture in the Sinai, the northern coast, New Valley and other areas; rationalizing irrigation; increasing government control of agricultural policy; providing long-term credit; controlling production to target market needs to avoid fluctuations in prices; fully enacting trade agreements to which Egypt is already party; integrating agriculture with Sudan; and preserving genetic assets. ¶21. (U) Industry, Energy and Mining: The platform calls for re-industrialization of Egypt, to focus on exports and move away from reliance on Suez Canal revenues, oil and gas exports, tourism, and remittances. This policy would include yet another national council for industrial policy; setting new industrial standards; improving vocational training; and balancing fossil fuel use by industry with renewable energy sources like wind, solar, and nuclear energy. ¶22. (U) Tourism and Civil Aviation: The platform recognizes the importance of this sector and calls for the study of other competitor countries, noting Egypt's comparative advantage in this area. The platform calls for entertainment tourism to conform to Islamic principles, which appears to be a reference to alcohol consumption in tourist areas. To develop the tourism sector, the platform calls for another national plan for cultural and coastal tourism, establishment of specialized hospitals in tourist areas, encouragement of conferences, and development of infrastructure. -------------- Comment -------------- ¶23. (SBU) This is the most comprehensive statement to date of the MB's views on Egypt's economy. It seems to be taking an approach similar to the GOE, with a focus on economics as the vehicle for change. The platform's focus on corruption and concern over the GOE's implementation of the privatization program will continue to resonate with disenfranchised poor voters. The platform can not be seen as a pro-business platform, even though many of the MB's members are wealthy businessmen and capitalists. The emphasis on self-sufficiency, alongside a call for implementation of trade agreements, suggests the MB has not thought through the contradictions in this policy or the costs to Egypt of turning inward economically. The platform is clearly aimed at convincing the dispossessed that an MB government would provide a better life through Islamic social justice. RICCIARDONE