Building Resilience and Opportunity: Social Protection Reform in Egypt

In 2014, the Egyptian government adjusted the way it keeps staple foods—like bread—affordable. Instead of subsidizing flour for bakeries that make baladi (rustic) bread, with the introduction of a smart card system it has shifted to subsidizing the actual loaves being sold. Previously, subsidized flour and bread were being bought cheap and sold high. The new approach limits to five the number of loaves a person can buy each day, making it harder to game the system, as well as making sure that affordably priced bread reaches the most vulnerable members of Egyptian society.

Effective targeting is important because—owing to political and economic turmoil—more people in Egypt are short of money for food now than they were about a decade ago. Extreme poverty has increased to about 26% in FY 2012/2013 from almost 17% in the Fiscal Year (FY) 1999/2000. And close to half Egyptians (49%) are classified as ‘poor’ or ‘vulnerable’ because they don’t have money for other basic human needs, like health and education.

Baladi bread wasn’t the only food affected by the policy reforms. Previously, most Egyptians were eligible for a monthly basket of low-cost foods, such as cooking oil, sugar, rice and macaroni. The new system gives the majority of Egyptians a small monthly allowance on a smart card. Any credit left over from baladi bread can be converted into points, providing incentives to buy other foods as well.

Low-income households also need access to finance. The International Finance Corporation, the private sector arm of the World Bank Group, works with local business associations in Egypt on microfinance, providing technical assistance to help them build resilience and institutional capacity, and diversify their product portfolios.

Egypt’s social protection system—broadly defined—commands a large share of the state’s annual budget, but historically, its impact on poverty and developing human capital has been limited. The July 2014 reforms include the gradual liberalization of energy prices over a period of 5–10 years. The government has already allowed the cost of fuel and electricity to increase, allocating about half the EGP 51 billion or US$6.7 million it’s saved to sectors that include social protection programs, especially the reform and expansion of social safety nets.

But in 2013/14, more than 7% of Egypt's GDP still went toward financing energy subsidies, two-thirds (68%) of which benefited the two richest tiers of Egyptian society most. In real terms, this amounted to more than what the government spent on health, education, and public investment combined.

The government is taking other steps, though, to do a better job of getting state support directly to the poorest of the poor. Aside from rationalizing existing policies, in 2012, Egypt set up a Labor Intensive Works Program that is part of the Social Protection Fund, which is supported by the World Bank and the European Union (EU). Focusing on regions, such as Upper Egypt, which lag behind in development, it provides temporary jobs for job seekers, especially unskilled and young workers. 

In 2010, geographical disparities between the country’s 82 million or so people were stark: Poverty in rural Upper Egypt exceeded 50% but was less than 15% in metropolitan Egypt. Rural areas of Upper Egypt have the largest share of people who are vulnerable or at risk of dropping into extreme poverty. Unemployment, particularly youth unemployment, is high in the country as a whole: in the last quarter of 2014, about 3.7 million Egyptians (13.4% of the labor force) were unemployed, 70% of them 15–29 years old.

The labor program generates urgently needed temporary jobs and supports the upkeep of community assets, such as schools, youth centers, canals and roads. By March 2015, it had created over 100,000 jobs, directly and indirectly, 40% for women and 74% for unemployed youth; 366 schools and 12 youth centers had been rehabilitated; some 3,147 km of canals and 77 km of rural roads had been upgraded, and 25 km of banks along the River Nile protected.

In April 2015, the Egyptian government launched another initiative as part of its Cash Transfer Program, Takaful and Karama (Solidarity and Dignity). Under this, poor families receive the equivalent of US$43–$83 a month, while some elderly people and people with disabilities receive US$47 a month. The program aims to cover 1.5 million families by 2017.

Takaful provides income support conditional on 80% school attendance by children ages 6–18, on medical check-ups for mothers and children under 6, and on attending nutrition classes. In contrast, Karama provides unconditional income support to the elderly and people with disabilities.

A national database is to consolidate social safety net programs. This Unified National Registry has made some progress toward linking the smart card to other social assistance and social security databases. In time, it will enable the programs to expand to the entire country.

The World Bank has been an active development partner in the social protection agenda in Egypt. World Bank Group President Jim Yong Kim, who will be visiting Luxor in Upper Egypt this week, has made this issue a priority for the Bank Group. “Social inclusion is key to anchoring and promoting inclusive growth, especially in regions lagging behind in terms of development. We are providing support in this area that includes expanding social safety net programs to reach the poorest households and mitigate the impact of any reforms,” said Kim.

The Bank Group has provided advice in the initial phases of preparing reforms, as well as in designing the new safety net programs. And it is also providing more tangible assistance by financing a US$400 million loan in support of Takaful and Karama and a US$200 million loan in support of the labor program.