Morsi tries to wean Egypt off power subsidies with nationwide curfew

From Thursday, Egypt's shops will close by 10pm and most restaurants will close by midnight, as president takes steps to remove unsustainable power subsidies.

Mohammed Morsi’s new government, desperate to break with the subsidies and administrative chaos that followed Hosni Mubarak's overthrow, is to enforce a ban on late-night shopping from Thursday.

CAIRO // Mohammed Morsi's first step on the road to salvaging Egypt's struggling economy will be to cut energy costs with a nationwide curfew for restaurants and shops.

From Thursday, shops will close by 10pm and restaurants without tourist licences will close by midnight, hours earlier than usual.

The president is already facing widespread opposition to the plan from businesses and industry groups who say any savings from lower energy consumption will be outweighed by reduced sales and higher unemployment.

The relatively small step is important because Mr Morsi's rise to power has coincided with Egypt's economy nearing a breaking point, thanks to unsustainable spending on subsidies and a business environment ravaged by instability since Hosni Mubarak's resignation nearly 21 months ago.

Economists say the president will need to enforce tough measures to rein in a growing fiscal deficit while trying to satisfy the demands for social justice that helped to inspire the uprising against the Mubarak regime.

Unemployment has risen to 12.4 per cent from about 9 per cent before the uprising, and constant strikes in both the public and private sectors have slowed business to a crawl.

Dealing with subsidies - particularly those on energy - is a priority. Nearly 20 per cent of the budget is spent on making fuel and bread cheaper for Egypt's 83 million people, more than the government spends on health and education combined.

"The question is, can Egyptians do what they need to do, can they swallow the medicine?" said Mounir Fakhr Abdel Nour, a high-ranking official in the liberal Wafd party and a former tourism minister.

Unwillingness to deal with rising subsidy costs was one of Mubarak's greatest failures, Mr Abdel Nour said. "He was unable to tackle this and he had all the powers to do it. There was little freedom of speech, or to demonstrate ... He had all the powers of a dictator, but he did nothing."

A delegation from the International Monetary Fund will arrive this week to discuss Egypt's request for a US$4.8 billion (Dh17.7bn) loan. The IMF will grant the loan only if Egypt presents a plan to cut the deficit. Analysts said such a plan must begin with subsidy reform and widening the tax base: two highly contentious issues in Egypt.

Gamal Abdel Nasser, one of the officers who led a revolt against Egypt's monarchy in 1952 and who later became president, introduced a wide-ranging subsidy system as part of his socialist agenda to better the lives of Egyptians. But by the time his successor, Anwar Sadat, took over, costs were beginning to spiral out of control.

Faced with rising global oil prices, Sadat attempted to raise the price of rice, sugar and cooking gas - staple products for millions of Egyptians - in 1977. But the sudden and woefully ill-communicated decision provoked a huge backlash in what was known as the "Bread Riots".

A Newsweek article from January 31, 1977, described clashes with police and even the sacking of a home belonging to then vice president Mubarak in Alexandria. Protesters tore a three-metre poster of Sadat to shreds, shouting "Down with Sadat" and "Nasser, Nasser, Nasser".

, John Waterbury, the professor emeritus at Princeton University's Woodrow Wilson School of Public and International Affairs who was living in Cairo at the time, said the riots were "fairly restrained" compared with the uprising last year against the Mubarak regime.

"After the riots, Sadat back-pedalled not only on subsidy reforms but on his significant political open-door policy," Prof Waterbury said.

Such incidents in Egyptian history have haunted the halls of the presidential palace ever since. But Egypt's dire economic situation after last year's uprising means that Mr Morsi is left with the decision about how to handle painful reforms.

If the curfew is retracted, it would give an indication that the president is opting for populist measures rather than economic reforms. The pressure is mounting on him to backtrack, particularly after the head of Egypt's federation of chambers of commerce came out against the plan because, Ahmed El Wakil said, it would increase unemployment by 3 to 4 per cent and cause losses of about 25 billion Egyptian pounds (Dh$15bn).

If the curfew is enforced, it will be a crucial indicator of the president's willingness to make unpopular decisions needed to revive the economy in the months and years to come. The risk for Mr Morsi - and Islamist groups in general - is that voters will answer such moves in parliamentary elections by voting for political parties who promise to support their needs.

"The question is will Mr Morsi and his government be able to convince people that change is needed," said Mr Abdel Nour. "In the new Egypt, you can't impose anything on anyone. But we don't have a choice. We are at the end of the line."

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