Another scandal has cropped up in Egypt's wheat sector. The country's prosecutor general revealed Aug. 7 that more than $60 million earmarked for buying local wheat had been stolen. Though the money is accounted for in the government's ledgers, the funds were not used for their intended purpose. This is not the first time Egypt has had to reckon with corruption in its wheat sector, nor is it surprising to uncover multitiered, systemic corruption in a developing economy as troubled as Egypt's. But President Abdel Fattah al-Sisi campaigned in part on eliminating corruption, and two years into his term, his government needs public buy-in more than ever.
Egyptians have already lost some confidence in their government's ability to manage the country's food supply and to deliver on its promises to root out corruption. Moreover, to receive the aid package that the country is negotiating with the International Monetary Fund, Egypt must first satisfy the organization's stipulations by, among other things, tightening subsidies and demonstrating that its government is trustworthy. To save face, the government has pointed blame at agriculture ministry employees — and not the middlemen who typically commit this kind of fraud — and issued arrest warrants. Egypt's parliament has designated a committee to address wheat corruption, and lawmakers have requested audiences with the prime minister, supply minister and other government officials in the weeks to come. Though these measures will go some distance toward curing the ills in Egypt's wheat sector (and securing IMF aid), the real challenge lies in reining in the country's liberal subsidies without harming the people who depend on them.
As the leadership of a country with a centralized economy dominated by the public sector, the Egyptian government is primarily concerned with feeding its citizens. To a great extent, its success in achieving this goal depends on wheat. Egypt is the world's largest importer of wheat, and the government subsidizes domestic wheat at every level of production. For example, with subsidies, wheat farmers get more money for their crops than they would selling them on the international market (a program the government has already tried to scale back). In addition, wheat is subsidized for consumption. Egyptian families are allotted five loaves of wheat bread per person per day, which they can redeem from government bakeries at rock-bottom prices using electronic chip cards.
Problems by the Bushel
As important as wheat is to Egypt, the sector is often troublesome. Disruptions in Egypt's demand for wheat — caused by political unrest, scandal and, frequently, inefficiency — are common and can upset the global market. They also hurt Egypt itself, which must pay out risk premiums for holding up wheat shipments and erratically pursuing tenders. Furthermore, the government's liberal support for domestic wheat translates to inflated prices for the crop and breeds corruption in the country's wheat sector. Since subsidies mean domestic wheat can fetch nearly twice the price of imported wheat, silo owners, brokers and farmers often mix foreign wheat in with the local crop and pass the end product off as purely domestic.
Revelations of the latest corruption scandal began to surface in June when the Egyptian government announced that it had procured close to 5 million metric tons of wheat from the domestic harvest, just shy of the previous year's haul of 5.3 million metric tons. These numbers seemed dubious, arousing suspicions among Egyptians. Brokers are suspected of adding cheaper foreign wheat into the local product before selling it. Corruption on this scale involves many parties — from officials in several government ministries to the various silo owners and brokers who process the wheat after its harvest — all of whom are pointing fingers at everyone else. Even the proper number of government-owned versus private-owned shounas, or wheat storage silos, has come under scrutiny, and travel bans were issued this week for some shouna owners.
Between a Rock and a Hard Place
With so many moving parts to the scandal, the investigations stand to have serious repercussions for Egypt and its leaders. The country's government is negotiating with the IMF for upward of $12 billion over three years, which in turn will unlock an additional $9 billion in international funding. To get that aid, Egypt's government may have to reduce its domestic wheat subsidies, in turn lowering farmers' profits from selling the crop at home. Even if farmers' subsidies are spared, other related financial support systems, such as Egypt's food subsidy delivery system, will doubtless face review. The government could reduce its per-family food subsidy allotment, which it already cut slightly in 2014. But to effectively phase out any subsidies, Egypt will first have to address rampant corruption. And that will be a daunting endeavor in a country whose economy has become so reliant on government support. After all, whatever anti-corruption measures Egypt's government attempts will be only as effective as the government employees entrusted with implementing them.
Given the precarious state of Egypt's economy, any IMF-suggested and government-led initiative to reduce subsidies in the wake of the investigations of Egypt's wheat sector could threaten the living standards of Egypt's very poor, who often depend on the loaves that the government allots them for survival. In fact, all Egyptians, regardless of socio-economic status, will feel the effects if the government undertakes meaningful subsidy reform.
The next international wheat tender is due for delivery between Sept. 11 and Sept. 20. Egypt's supply ministry announced during the week of Aug. 1 that the country has enough wheat in its strategic reserves to last until February — a decent cushion by Egyptian standards. For now, the graft in the wheat sector has not spurred a food crisis, or even a shortage, limiting the opposition's ability to use the incident against al-Sisi's administration. Even so, the public has been losing confidence in its government for years, slowly but surely. As al-Sisi works to solve the problem in the months ahead, his government's ability to enact reforms that will actually hold, and that will not be wasted by systemic corruption, will come increasingly into question.
