Cablegate: Egypt Tries to Get Smarter in Delivering Food


DE RUEHEG #2279/01 3041349
P 301349Z OCT 08




E.O. 12958: N/A

1. (U) Summary: The Egyptian government has expanded its
smart card pilot for the delivery of subsidized food
products. According to the Ministry of Social Solidarity
(MSS), which is responsible for the delivery of subsidies, it
has expanded its pilot smart card program, which was first
piloted in Suez, to eight governorates and plans to complete
its roll-out throughout the country by the end of 2009.
According to the GOE, the smart card system is allowing the
government to collect improved data on the demand for
subsidies while at the same time helping realize a 20% cost
savings as a result of improvements in the supply-chain. The
improved data and infrastructure of this program will
certainly help modernize the system that has been in place
for decades. Nevertheless, the subsidy system remains badly
flawed and does a poor job of targeting the most needy.
Serious structural change will require tough choices and
political will which still appears a long way off. End

2. (U) Noha Kaptan, Information Infrastructure advisor to the
Minister of Social Solidarity (MSS), told Econoff that the
GOE ration smart card pilot had been expanded to eight
governorates in Upper Egypt and the Delta and that the
government planned to complete the smart card roll-out
throughout the country by the end of 2009. An estimated 11
million households, representing more than 50 million
Egyptians, are eligible for and participate in Egypt's food
ration program. This program provides substantial discounts
of between 50-90% on a basket of core grocery products.
These products include rice, sugar, tea, cooking oil,
lentils, and pasta.

3. (U) The new smart cards will ultimately replace the paper
ration card system that has been in place for over half a
century. With a paper ration card, record-keeping is done by
the individual grocer by hand in a ledger book. When a
subsidized product is sold, the shopkeeper writes the
customer and purchase details in the ledger, and the entry is
countersigned by the customer. At the same time, the grocer
signs the customer's paper card to indicate that they have
received their monthly allotment. Supply and demand were
rarely matched up and most grocers received their monthly
shipments of ration goods without regard to how much of their
stock had been sold. Under the smart card system, the
transaction is recorded at the point of sale, and both the
customer's smart card and the grocer's smart card system are
updated automatically. Only after the grocer's transactions
have been downloaded by the MSS are additional inventory
purchases authorized. The benefits of better record-keeping
help to reduce costs by better managing supply and delivery
of rationed products while at the same time improving
oversight to reduce fraud.

4. (U) Kaptan told Econoff that in the pilot governorates
implementation of tracking via the ration smart cards had
reduced demand by 20%--probably representing the amount that
was previously being skimmed off the top of the paper-card
system. When rolled out nationwide, this could potentially
save the GOE over LE 180 million ($32 million) annually. In
addition to better food ration delivery, Kaptan pointed out
this pilot program is also being used to deliver certain
government pensions. The recipients of these pensions are
able to take their smart cards to the post office each month
to receive their payments.

5. (U) Implementation of smart card infrastructure could
ultimately enable the GOE to deliver subsidized food products
through virtually any grocery store rather than through the
specialized ration products and government-owned stores. In
addition, any future implementation of a cash transfer system
to replace the ration regime could be more easily
facilitated. According to Kaptan, these types of initiatives
are not in current MSS planning. She pointed out that there
are over 17,000 ration-card groceries in Egypt, and there is
no plan to shut them down. The goal, she said, of the smart
card implementation is efficiency rather than structural

6. (U) Food subsidies are a tremendous budget line for the
Egyptian government--amounting to over $3.1 billion last
year--and the leakage from the system is astounding. There
are no reliable estimates for the amount of subsidized food
that is stolen or sold at prices higher than the subsidized
rate, but even the government admits the problem is
widespread. In a recent example, in mid-October the press
reported that Egyptian customs officials had seized three
containers containing 55 tons of subsidized rice that was
being exported to Kuwait.

7. (U) It is important to note that the subsidized bread
program remains untouched by the current initiative. Badly
in need of reform, the subsidized bread program is
politically sacrosanct in Egypt. This program, which is
managed separately from the food ration program, is available
to all Egyptians regardless of their economic situation, and
represents around 70% of the government's expenditure on food

8. (U) Comment: There is tremendous sensitivity around the
issue of subsidies in Egypt. In 2007, President Hosni Mubarak
called for a national dialogue of subsidy reform, though
there has been little follow through. Most government and
private sector economists agree that reducing the fiscal
burden of subsidies is a necessity. There is also
substantial consensus around better targeting of benefits to
make sure that the subsidies are reaching the intended
recipients. Initial results of the smart card system for
food subsidy delivery are positive, and the resulting
reduction in waste appears very substantial. By putting the
smart card infrastructure in place, the government will be
able to collect much better data to support delivery and
targeting of subsidies and may have more flexibility as it
tries more innovative ways of providing much needed
assistance to Egypt's poor. That said, much of the heavy
lifting of subsidy reform remains to be done.

© Scoop Media

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