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Cablegate: Mb Platform Calls for "Mixed" Public-Private Economy

VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #2148/01 1921011
ZNR UUUUU ZZH
R 111011Z JUL 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 6091
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0290

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

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Summary
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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.

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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

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