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Undervalued and underestimated: When working for the state doesn’t pay off

There has been much written about the impact of the government’s decision to float the Egyptian pound and implement a number of austerity measures after signing an agreement with the International Monetary Fund (IMF) for a US$12 billion loan in November 2016: Middle-class Egyptians have seen their savings slashed in value, and many are cutting down on international travel and purchasing certain commodities. The real pain of the decision is being felt by the poorest segments of the population, for whom the government initiated a number of programs, including the Takaful conditional cash transfer scheme, the Karama program for people with disabilities who have no other source of income, and Amman certificates for informal sector workers.

But what about the 6.8 million government employees who are not provided for by Takaful, Karama or Amman, and who saw their fixed salaries drastically cut after the currency devaluation? They are the ones responsible for the implementation of the government’s programs, and many of them are struggling to subsist.

If, with a simple calculation, we assume that each government employee is financially responsible for a spouse and at least two dependents, this affects more than 20 million citizens, or one fifth of the total population. As a professor of public administration, who for decades has been studying the importance of employee motivation, the failure of this compensation system to adequately pick up the fall for many government employees worries me a great deal.

Many people argue some economic reform was necessary in Egypt. There was a dire need to reduce the country’s fiscal deficit and rising debt, particularly after the decrease in foreign currency reserves following the 2011 revolution. This was the result of, among other factors, a decrease in exports, external remittances and a drop in the number of tourists. Exports reportedly decreased from US$31.5 billion in 2011 to US$22.5 billion in 2016; total remittances from Egyptians abroad decreased by nearly 15 percent from 2015 to 2016, and the total number of tourists dropped from 11 million in 2011/2012 to 6.6 million in 2016/2017. Following a downturn in global trade, revenues from the Suez Canal also dropped, from US$5.2 billion in 2015 to US$5 billion in 2016, despite the opening of a new channel in August 2015.

The economic program Egypt has undertaken is being heralded by some as courageous. PWC Middle East claimed the economy one year on showed “a quick and strong sign of renewed confidence,” and that Egypt has become “a more affordable destination than before, be it as a travel or an investment destination.” The IMF mission chief for Egypt, Chris Jarvis, said in 2017, “Egypt is in a better place than last year. I think they have already taken the most difficult steps on the macroeconomic level.”

Others saw the measures as inevitable. Egypt’s finance minister, Amr al-Garhy, was quoted as saying: “If we left things the way they were progressing, it would have taken us to a much more difficult situation [..] If we leave it like this, the debt will increase, the deficit will increase and things will be much, much tougher.”

But, even if on a macroeconomic level the measures taken have alleviated the pressure, what impacts have they had on low-level government sector workers?

Egypt’s new Civil Service Law 25/2015, and its annex containing details of compensation for government employees, lists monthly salary allocations in Egyptian pounds. They are notably low, especially when converted to US dollars to reflect their real value after devaluation. While it is true that many government employees receive additional allowances and incentives on top of their monthly salaries, usually referred to as “complementary income,” fixed wages still make up the largest portion of their total income.

Article 37 of the Civil Service Law 81/2016 stipulates that employees should receive an annual inflationary increase that is equivalent to seven percent of their monthly salaries. But, according to Article 38 of the same law, not more than 10 percent of employees on the same salary scale in any one organization may receive an incentive raise that is equivalent to five percent of their monthly salaries, and each person may only receive such a raise a maximum of once every three years.

Employees may additionally receive lump sum monthly bonuses for “scientific excellence” if they manage to obtain an additional academic degree, either a graduate Diploma, Masters or PhD, with the amount for the latter estimated at LE200, or US$11.11 at the current exchange rate of LE18 to the dollar. It is also worth noting that government employees are among the most conforming in terms of income tax payments, as taxes are deducted for them.

The basics of keeping civil servants who are responsible for the smooth operation of governmental programs happy in terms of their salaries and lifestyles is being largely overlooked.

According to the most recent calculations of the national poverty line for Egypt, determined at LE700-800 in 2017, it seems that for many government pay grades where the monthly salary is slightly above LE800, employees are bordering on the national poverty line. Fourteen out of the total 31 job levels in government obtain monthly salaries that are less than LE900. If we consider this against the international poverty line of US$1.9 a day, or US$57 per month, determined by the World Bank, the picture is very bleak.

All skilled laborers and service support staff, the majority of the clerical and technical staff, and even many specialized staff receive monthly salaries that place them below the international poverty line.

An additional source of pain is the planned relocation of many government employees to the new administrative capital, and the ambiguity surrounding how the move is going to be implemented. Many government employees are unsure whether they will be asked to leave, go on early retirement, or move to the new capital. The last option does not seem very desirable due to lack of clarity about means of transportation and the time and cost of commuting, among other factors. Many people have strong family commitments in other parts of the city, such as the location of their children’s schools, their spouse’s work places, and arrangements for childcare, often from family members living nearby.

While there is some discussion of further training for government employees, establishing new training institutes, linking with the Ecole Nationale D’Administration in France, and introducing 360 degree performance evaluations for employees, the basics of keeping civil servants who are responsible for the smooth operation of governmental programs happy in terms of their salaries and lifestyles is being largely overlooked.

The president and his minister of finance often complain about the enormous wage bill for state employees, promising and delivering on occasional salary increases and bonuses. But, with the devaluation of the currency and rampant inflation, the situation needs to be urgently addressed.

Solutions are not easy, as state institutions, though often lamented for being overstaffed and requiring vast sums of money, are deeply entrenched in bureaucracy that stretches back to several populist public policies related to the mandatory appointment of all university graduates and extends to the selective appointment of political supporters during elections at various levels, and to continuous recruitment, even without there being a real need to do so.

But there are steps that could be taken to relieve the situation. For example, the government could introduce a progressive taxation system — a measure that has been neglected for years — whereby those who earn more pay more, with the purpose of moving the burden for the current austerity towards higher income groups. Resources could additionally be allocated in a more transparent fashion. So, rather than spending on mega projects with no clear return on investment, like the new branch of the Suez Canal, or the new administrative capital, or organizing huge international youth conferences like “We Need to Talk,” perhaps more resources should be allocated to social security, the creation of real job opportunities, or offering fair salaries for government employees that places them above the poverty line.

There is current skepticism about the expanding role of the Armed Forces into civilian and business sector activities, to the extent that some private sector companies are fearful of investment, despite a recent law that some believe will encourage investors. That said, there could be more and better incentives for the private sector in Egypt to create real job opportunities. South Korea, for example, obliged the private sector to invest in research and development in order to improve the quality of their labor force.

All of these measures, however, will be impossible to achieve without ensuring transparent and effective government administration and the rule of law. But, if real job opportunities are created through incoming FDI and the motivation of the private sector, inflation may slow and government employees may be able to better cope with their daily subsistence and to provide for their families.

Laila El Baradei