Unless you’ve been living under a rock for the past couple of years, our lovely country— Lady of the Nile—Egypt; has been undergoing major “economic surgery”, to finally put its economic health back on track.
The government calls this economic surgery “its homegrown economic program”. It is sponsored by the International Monetary Fund (IMF) and tackles various issues from which Egypt’s economy has been suffering, including, but not limited to, its subsidy bill [elda3m].The subsidy bill allows the government to pay the bulk of the price of the goods or services the average Egyptian uses. In return, the average citizen pays the remainder (usually smaller) portion of the price.
What does that mean?
I’ll illustrate with an example. Every day before you attend your lectures at university or go to work; you pass by a falafel shop to buy breakfast. You go in, make your usual order, and pay around 10LE for a sandwich and leave.
Little do you know that those 10LE you’re paying for your daily sandwich are not the real, full price. The bread is around 10LE a pack, fava beans around 4LE a can and vegetables cost around 6LE per kilo. So, all in all - for simplicity’s sake - one sandwich costs the shop around 20LE.
In order to fulfill its social responsibility towards the average citizen, the shop decides to forsake 50% of its profit. They let you pay 10LE only and recover their lost profit through taking loans from banks or selling other products that are more expensive. So now, the sandwiches are sold at what we call “subsidized” prices.
But that’s a good thing, right?
Not quite. You see, by selling the sandwich at half-price, the shop is burdening itself with more money than it earns. let’s assume that the shop buys ingredients worth 400LE to make 20 sandwiches. With the current state of “50% off”. They will pay an extra 10LE to cover the remaining amount of the price. This will lead to the shop resorting to cheaper products which will result in the quality of the sandwiches dropping
Where did the shop go wrong?
I’m glad you asked that question. So, remember when the shop decided to forsake 10LE from ALL CITIZENS? That’s where the shop went wrong. I’ll explain:
Mr. A from the rich class, earns a total of 100 LE.
Mr. B from the middle class earns a total of 60 LE.
Mr. C from the poor class earns a total of 20 LE.
For Mr. A, paying 10LE a sandwich means basically nothing to him. In short, he spends 10% of his income on the sandwich (which translates to 100-10=90LE. He now has 90LE to spend on other goods and services).
For Mr. B, it’s a different story: the amount he pays for his sandwich represents around 20% of his income (which translates to 60-10=50LE. He now has 50LE to spend on other goods and services, a smaller amount than Mr. A)
For Mr. C, it’s a tighter situation: for him, the sandwich represents around 50% of his income (which translates to 20-10=10LE. He now has 10LE only to spend on other goods and services, which makes it harder for him to comply with his other needs).
Okay, that sounds really unfair but again, where did the shop go wrong? How can the government solve this?
Instead of offering what we call “subsidized” products and/or services to all people without distinction; governments can and are building databases to track down the different income levels in the country. They are conducting what we call a “household survey” where they ask questions related to people’s jobs and income levels. This helps them determine which category every person falls into. With such surveys, the government will be able to better manage its subsidy bill, generate money flows to better the quality of the goods and services it provides, and help out those who need it the most.
Building databases is just one step in this economic surgery. Another step is applying what we call a “repricing scheme”; where instead of offering the product at a unified price of 10LE, the shop can change the price for Mr. A from 10 to 20LE, for Mr. B from 10 to 17LE and for Mr. C from 10 to 6LE.
To conclude, governments all over the world are always revisiting their subsidy bill to ensure it goes to people who need it the most. Among these governments is our very own. It wants to ensure that those who need the social blanket are well protected and can abide by their basic needs. It’s a lengthy process, one that takes a lot out of those who are well-off, but for the greater good. It’s a major step forward to ensuring everyone gets a fair and just treatment.
Did you get it?
If you have any thoughts, questions or inquiries? Write them down in the comments below!