Plight of Egypt's poor worries beneficiaries of growth

CAIRO, Sep 6 (Reuters) More than 1,000 wealthy men in suits gathered at a five-star Cairo hotel this week to hear Egyptian ministers talk about investment.

What they heard was the government's anguish over whether economic growth will soon alleviate the plight of the poor.

''It is a basic challenge that keeps me awake at night because I do not know how to handle it,'' Finance Minister Youssef Boutros-Ghali told the conference in the government's keynote opening speech to the business people.

''There is a stratum of Egyptian society that is not being reached... where income has not increased. These are the ones we have to reach out to,'' the minister added.

The poor at the gate were a recurrent theme at the two-day conference, with opinion divided between a majority who say it could be years before those at the bottom start to benefit and a minority who think high growth is already trickling down. Egypt is enjoying its highest sustained economic growth in decades at more than 7 per cent a year. But rising prices and stubbornly high unemployment make life grim for many Egyptians.

Boutros-Ghali said he was worried that the government's economic liberalisation programme could go off the rails if it does not find a way of spreading wealth more widely.

''For the coming 12 months this is going to be priority number one,'' the minister added.

President Hosni Mubarak and his government repeatedly talk about what they call the social dimension of economic policy. Mubarak has urged the government several times in August to explain the benefits of its programme to the public.

Some business people are alarmed too. ''We are adopting a full market-led economy for the first time and not everybody is taking the benefit and this creates discontent,'' Hussein Choucri Chairman of HC Securities and Investment told Reuters.

TRICKLE-DOWN MODEL Parts of the country went without mains water for weeks during the summer and people blocked highways in protest. Textile, cement and other workers have staged dozens of strikes over the past year, often winning concessions from management.

The government has pinned most of its hopes on a trickle-down model by which business people would distribute the benefits of growth to less wealthy individuals by creating more jobs and stimulating the economy.

''The problem is that this process will take a long time. The market has moved so quickly that really we are not catching up (in) the educational system and the skill development system,'' said Taher Helmy, senior partner at Helmy, Hamza and Partners.

''Trickle-down frankly is not going to be easy... It is not going to happen very soon. This is part of the growing pains.

The gap is going to widen but hopefully that again will be for the short term,'' he added.

Alaa Saba, chairman of Cairo investment bank Beltone, disagreed.

''There are some numbers that might indicate that the trickle-down effect is actually happening. The growth of sales in some of the consumer goods in Egypt are witnessing unprecedented numbers,'' he said.

He cited an 80 per cent increase in sales of fans in the past year, outpacing 40 per cent growth in sales of air conditioners.

Boutros-Ghali said his strategy for spreading wealth included doubling to about 1.2 million the number of families who receive monthly cash benefits, improving the mechanism for targeting subsidies to the poor and measures, such as retraining, which would give the poor access to better jobs.

He also promised better pensions and health care and improvements in the services the government provides.

Economists said the government's dilemma will be to maintain the pace of economic liberalisation, which would mean cutting subsidies to control the budget deficit, at a time when it might need to increase spending to maintain social peace.

''We should not sacrifice the gains that we have made in terms of macroeconomic stability,'' said Ziad Bahaa Eldin, chairman of the General Authority for Investment.

REUTERS RJ RAI0954