Even Islamists have to eat. It is unclear whether President Hosni Mubarak of
Egypt will survive, or whether his nationalist regime will be replaced by an
Islamist, democratic, or authoritarian state. What is certain is that it will
be a failed state. Amid the speculation about the shape of Arab politics
to come, a handful of observers, for example economist Nourel Roubini, have
pointed to the obvious: Wheat prices have almost doubled in the past year.
Egypt is the world's largest wheat importer, beholden to foreign providers for
nearly half its total food consumption. Half of
Egyptians live on less than $2 a day. Food comprises almost half the country's
consumer price index, and much more than half of spending for the poorer half
of the country. This will get worse, not better.
Not the destitute, to be sure, but the aspiring and frustrated young,
confronted the riot police and army on the streets of Egyptian cities last
week. The uprising in Egypt and Tunisia were not food riots; only in Jordan
have demonstrators made food the main issue. Rather, the jump in food prices
was the wheat-stalk that broke the camel's back. The regime's weakness, in
turn, reflects the dysfunctional character of the country. 35% of all
Egyptians, and 45% of Egyptian women can't read.
Nine out of ten Egyptian women suffer genital mutilation. US President Barack
Obama said Jan. 29, "The right to peaceful assembly and association, the right
to free speech, and the ability to determine their own destiny … are human
rights. And the United States will stand up for them everywhere." Does Obama
think that genital mutilation is a human rights violation? To expect Egypt to
leap from the intimate violence of traditional society to the full rights of a
modern democracy seems whimsical.
In fact, the vast majority of Egyptians has practiced civil disobedience
against the Mubarak regime for years. The Mubarak government announced a
"complete" ban on genital mutilation in 2007, the second time it has done so -
without success, for the Egyptian population ignored the enlightened
pronouncements of its government. Do Western liberals cheer at this quiet
revolt against Mubarak's authority?
Suzanne Mubarak, Egypt's First Lady, continues to campaign against the
practice, which she has denounced as "physical and psychological violence
against children." Last May 1, she appeared at Aswan City alongside the
provincial governor and other local officials to declare the province free of
it. And on October 28, Mrs Mubarak inaugurated an African conference on
stopping genital mutilation.
The most authoritative Egyptian Muslim scholars continue to recommend genital
mutilation. Writing on the web site IslamOnline, Sheikh Yusuf al-Qaradawi - the
president of the International Association of Muslim Scholars - explains:
The
most moderate opinion and the most likely one to be correct is in favor of
practicing circumcision in the moderate Islamic way indicated in some of the
Prophet's hadiths - even though such hadiths are not confirmed to be
authentic. It is reported that the Prophet (peace and blessings be upon him)
said to a midwife: "Reduce the size of the clitoris but do not exceed the
limit, for that is better for her health and is preferred by husbands."
That is not a Muslim view (the practice is rare in Turkey, Iraq, Iran and
Pakistan), but an Egyptian Muslim view. In the most fundamental matters,
President and Mrs Mubarak are incomparably more enlightened than the Egyptian
public. Three-quarters of acts of genital mutilation in Egypt are executed by
physicians.
What does that say about the character of the country's middle class? Only one
news dispatch among the tens of thousands occasioned by the uprising mentions
the subject; the New York Times, with its inimitable capacity to obscure
content, wrote on January 27, "To the extent that Mr. Mubarak has been willing
to tolerate reforms, the cable said, it has been in areas not related to public
security or stability.
For example, he has given his wife latitude to campaign for women's rights and
against practices like female genital mutilation and child labor, which are
sanctioned by some conservative Islamic groups." The authors, Mark Landler and
Andrew Lehren, do not mention that 90% or more of Egyptian women have been so
mutilated. What does a country have to do to shock the New York Times? Eat
babies boiled?
Young Tunisians and Egyptians want jobs. But (via Brian Murphy at the
Associated Press on January 29) "many people have degrees but they do not have
the skill set," Masood Ahmed, director of the Middle East and Asia department
of the International Monetary Fund, said earlier this week. "The scarce
resource is talent," agreed Omar Alghanim, a prominent Gulf businessman. The
employment pool available in the region "is not at all what's needed in the
global economy." For more on this see my January 19 essay,
Tunisia's lost generation. There are millions of highly-qualified,
skilled and enterprising Arabs, but most of them are working in the US or
Europe.
Egypt is wallowing in backwardness, not because the Mubarak regime has
suppressed the creative energies of the people, but because the people
themselves cling to the most oppressive practices of traditional society. And
countries can only languish in backwardness so long before some event makes
their position untenable.
Wheat prices 101 and Egyptian instability
In this case, Asian demand has priced food staples out of the Arab budget. As
prosperous Asians consume more protein, global demand for grain increases
sharply (seven pounds of grain produce one pound of beef). Asians are rich
enough, moreover, to pay a much higher price for food whenever prices spike due
to temporary supply disruptions, as at the moment.
Egyptians, Jordanians, Tunisians and Yemenis are not. Episodes of privation and
even hunger will become more common. The miserable economic performance of all
the Arab states, chronicled in the United Nations' Arab Development Reports,
has left a large number of Arabs so far behind that they cannot buffer their
budget against food price fluctuations.
Earlier this year, after drought prompted Russia to ban wheat exports, Egypt's
agriculture minister pledged to raise food production over the next ten years
to 75% of consumption, against only 56% in 2009. Local yields are only 18
bushels per acre, compared to 30 to 60 for non-irrigated wheat in the United
States, and up 100 bushels for irrigated land.
The trouble isn't long-term food price inflation: wheat has long been one of
the world's bargains. The International Monetary Fund's global consumer price
index quadrupled in between 1980 and 2010, while the price of wheat, even after
the price spike of 2010, only doubled in price. What hurts the poorest
countries, though, isn't the long-term price trend, though, but the volatility.
People have drowned in rivers with an average depth of two feet. It turns out
that China, not the United States or Israel, presents an existential threat to
the Arab world, and through no fault of its own: rising incomes have gentrified
the Asian diet, and - more importantly - insulated Asian budgets from food
price fluctuations. Economists call this "price elasticity." Americans, for
example, will buy the same amount of milk even if the price doubles, although
they will stop buying fast food if hamburger prices double. Asians now are
wealthy enough to buy all the grain they want.
If wheat output falls, for example, due to drought in Russia and Argentina,
prices rise until demand falls. The difference today is that Asian demand for
grain will not fall, because Asians are richer than they used to be. Someone
has to consume less, and it will be the people at the bottom of the economic
ladder, in this case the poorer Arabs.
That is why the volatility of the wheat price (the rolling standard deviation
of percentage changes in the price over twelve months) has trended up from
about 5% during the 1980s and 1990s to about 15% today. This means that there
is a roughly two-thirds likelihood that the monthly change in the wheat price
will be less than 15%.
It also means that every so often the wheat price is likely to go through the
ceiling, as it did during the past 12 months. To make life intolerable for the
Arab poor, the price of wheat does not have to remain high indefinitely; it
only has to trade out of their reach once every few years.
And that is precisely what has happened during the past few years:
After 30 years of stability, the price of wheat has had two spikes into the $9
per bushel range at which very poor people begin to go hungry. The problem
isn't production. Wheat production has risen steadily - very steadily in fact -
and the volatility of global supply has been muted:
The line in Chart 3 above marked "production volatility" is the five-year
standard deviation of annual percentage changes in world wheat supply (data
from US Department of Agriculture). During the 1960s and 1970s, it hovered
around the 3% to 5% range, but fell to the 1% to 3% range.
It shows an approximately two-thirds likelihood that world wheat supply will
change by less than 3% each year. Wheat supply dropped by only 2.4% between
2009 and 2010 - and the wheat price doubled. That's because affluent Asians
don't care what they pay for grain. Prices depend on what the last (or
"marginal") purchaser is willing to pay for an item (what was the price of the
last ticket on the last train out of Paris when the Germans marched on June 14,
1940?). Don't blame global warming, unstable weather patterns: wheat supply has
been fairly reliable. The problem lies in demand.
Officially, Egypt's unemployment rate is slightly above 9%, the same as
America's, but independent studies say that a quarter of men and three-fifths
of women are jobless. According to a BBC report, 700,000 university graduates
chase 200,000 available jobs.
A number of economists anticipated the crisis. Reinhard Cluse of Union bank of
Switzerland told the Financial Times last August:
"Significant hikes in
the global price of wheat would present the government with a difficult
dilemma.
Do they want to pass on price rises to end consumers, which would reduce
Egyptians' purchasing power and might lead to social discontent?
Or do they keep their regulation of prices tight and end up paying higher
subsidies for food? In which case the problem would not go away but end up in
the government budget.
Egypt's public debt is already high, at roughly 74% of gross domestic produce
(GDP), according to UBS. Earlier this year the IMF projected that Egypt's food
subsidies would cost the equivalent of 1.1% of GDP in 2009-10, while subsidies
for energy were expected to add up to 5.1%.
...
Tensions over food have led to violence in bread queues before and it wouldn't
take much of a price rise for the squeeze on many consumers to become
unbearably tight."
One parameter to watch closely is the
Egyptian pound. Insurance against Egyptian default was the London Interbank
Offered Rate (Libor) +3.3% a week ago; on Friday, it stood at Libor + 4.54%.
That's not a crisis level, but if banks start reducing exposure, things could
get bad fast. In 2009 Egyptian imports were $55 billion against only $29
billion of exports; tourism (about $15 billion in net income) and remittances
from Egyptian workers (about $8 billion) and other services brought the current
account into balance. Scratch the tourism, and you have a big deficit.
Egypt has $35 billion of central bank reserves, adequate under normal
conditions, but thin insulation against capital flight. Foreigners hold $25
billion of Egypt's short-term Treasury bills, for example. It would not take
long for a run on the currency to materialize - and if the currency devalues,
food and fuel become all the more expensive. A vicious cycle may ensue.
Under the title The
Failed Muslim States to Come (Asia Times Online December 16, 2008), I
argued that the global financial crisis then at its peak would destabilize the
most populous Muslim countries:
Financial crises, like epidemics, kill
the unhealthy first. The present crisis is painful for most of the world but
deadly for many Muslim countries, and especially so for the most populous ones.
Policy makers have not begun to assess the damage. The diplomatic strategy of
the industrial nations now resembles a James Clavell potboiler, in which an
earthquake interrupts a hopelessly immured plot. Moderate Islam was the El
Dorado of the diplomatic consensus.
It might have been the case that Pakistan could be tethered to Western
interests, or that Iran could be engaged peacefully, or that Turkey would
incubate a moderate form of Islam. I considered all of this delusional, but the
truth is that we shall never know. The financial crisis will sort them out
first.
I was wrong. It wasn't the financial crisis that
undermined dysfunctional Arab states, but Asian prosperity. The Arab poor have
been priced out of world markets. There is no solution to Egypt's problems
within the horizon of popular expectations. Whether the regime survives or a
new one replaces it, the outcome will be a disaster of, well, biblical
proportions.
The best thing the United States could do at the moment would be to offer
massive emergency food aid to Egypt out of its own stocks, with the
understanding that President Mubarak would offer effusive public thanks for
American generosity. This is a stopgap, to be sure, but it would pre-empt the
likely alternative. Otherwise, the Muslim Brotherhood will preach Islamist
socialism to a hungry audience. That also explains why Mubarak just might
survive. Even Islamists have to eat. The Iranian Islamists who took power in
1979 had oil wells; Egypt just has hungry mouths. Enlightened despotism based
on the army, the one stable institution Egypt possesses, might not be the worst
solution.
Spengler is channeled by David P Goldman. Comment on this article in
Spengler's Expat Bar
forum.
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