A sweetheart economy?

You're starting your own business. To get your permit, you've had to shell out LE 10,000, via your "consultant." You've paid your buddy the banker a few thousand to knock a couple of percentage points off a sweetheart loan, and the tax officer took home a little extra in return for the Arento guy), and the local police are no longer giving you trouble when your loading vans block up traffic in front of your warehouse. You've already fired your procurer for buying cheap raw materials from his brother at twice the market price. Then trouble hits -- a court sentence hits you from out of the blue, LE 100,000 fine and a year in prison. You never even knew there was a trial date. What happened? Your disgruntled ex-employee filed a frivolous lawsuit, and paid off the writ-server to deliver the summons to the wrong address.  

Public officials abusing their power for personal gain -- that's the image that most Egyptians have of their government. It's the most popular line of attack of the opposition against the regime -- it indicts the whole system, without naming any of the powers that be in particular. Ask most businesspeople if it really affects their business, however, and they'll say no. Egypt is not Nigeria. Entrepreneurs have their horror stories -- losing millions for failure to pay a LE 30,000 bribe for a permit, for example -- but the real complaints come from the lower end of the income scale -- a scholarship lost to the police general's son, a lifetime setback. Corruption doesn't drive away investors so much as it blocks upward mobility. Its cost should be measured less in terms of lost investment, than lack of confidence in the system, and therefore political instability.  

According to a quick survey of business pundits, the top ten forms of corruption in Egypt include the following:  

Permits and services: Bribes for a licenses, such as to start a company, or for services such as phone lines. An article which appeared in Al Alam Al Youm of 20 March put the amount of "baksheesh" paid to bureaucrats at LE 5 billion a year, representing 15 percent of their salaries (which average LE 150 a month).  
Procurements and sales: The procurer for a state agency or company receives a kickback from the seller to buy goods that are less than optimum. Easy, because most Egyptian firms are weak on internal controls.  
Banking: The loan officer takes a bribe to hand out a risky or below-market loan. Three dozen parliamentarians, businessmen, and bank officers are currently on trial for sweetheart banking in one of Egypt's largest corruption cases ever.  
Construction violations: Local councils are infamous for taking money to overlook extra floor or zoning violations.  
Taxes/customs: Egypt uses the French tax and customs system, which lets officers assess the amount paid arbitrarily. This system lends itself easily to corruption if not properly supervised.  
Law enforcement: The old fiver-at-the-traffic-light. Policemen, particularly underpaid conscripts, often take bribes to overlook infractions.  
Education: Includes Egypt's infamous private lessons system, where teachers charge for after-school classes which discuss the questions that will actually be on the test. Also includes nepotism in admissions, most notoriously to the police academy.   
Judicial: Mostly involves low level officials, in particularly the writ servers, to move your case ahead of others, make sure it gets proper consideration from the judge, collect damages, or the old misdeliver-the-summons trick. Judges are reputed usually to be incorruptible, although -- as in all countries -- there are occasional accounts of one taking a bribe.  
Electoral: Bribes for votes and ballot-box stuffing, with the complicity of the authorities. Reported not just in parliamentary elections, but in elections for unions, local councils, and the chairmanships of sports clubs.  
Conflict of interest: Ministerial family members trade on insider information, top cops buying shares in private security firms, public sector bosses taking consultancy fees, the head of state TV moonlighting for Saudi satellite. Much of this is not yet illegal.  

This by no means exhausts the possibilities. New and exotic ways for state officials to abuse their power are reported all the time.  

How bad is it? Transparency International, a leading international anti-corruption NGO, has conducted yearly surveys of multinational officers, on how they perceive corruption impacts the society and economy. Egypt scored 2.84 on a scale of 0 to 10; not good, but the least corrupt country of comparable per-capital GDP. Egypt did worse than Italy, Mexico, Ecuador, or Brazil, but better than Colombia, Uganda, Philipines, Indonesia, India, Russia, China, Kenya, and Nigeria. It's getting better, too: from 1988 to 1992, Egypt averaged a score of 1.75. From 1980 to 1985, Egypt averaged 1.12.  

This corresponds with the prevailing wisdom in the multinational community. "It's definitely not a big problem for foreign investors," says one financial journalist who deals with a large number of multinationals. "They don't mention it in the top five problems: infrastructure, education, and taxes, that kind of thing."  

The biggest negative economic impact of corruption is probably in the financial sector. "All the mishaps that are reported may discourage prudent investors, and depositors," says senior economic adviser to the minister of state Mahmoud Mohieddin. "Businessmen rely on their own resources, get no financial assistance from banks. They put their money into real estate, inflation hedges, gold, land, or in a safe place at home." Banks also are aware that many of their loans aren't recoverable, Mohieddin says, which decreases the amount they are willing to loan out. Egypt, however, is no worse in this respect than other countries in its income group.  

One gets an entirely different perspective from working-class Cairenes. "A sick system," "Everything goes to the fat cats;" "Run by criminals, for criminals," "Corruption weighs upon us, every day," -- comments collected by the Cairo Times over the past month. This has its political backlash. Back when the Gamaa Islamiya was still active in public, its members  usually cited one main reason as to why they were trying to overthrow the government -- not peace with Israel, not the constitution, not the mingling of the sexes, not the disparity between rich and poor. It was that the police didn't enforce the law, and criminals went free.  

Why does Egypt suffer from corruption? A decade ago, the theory was in vogue that traditional cultures pulled too quickly into modern capitalism lend themselves to corruption. Transparency International argues strenuously that this so-called culture of corruption is a myth. Whatever systems of gift-giving were in place in pre-colonial cultures took place out in the open, Transparency argues. Non-transparent decision-making is largely a product of colonial administrations. However, in one respect, tradition does lend itself to certain forms of corruption -- Egypt's predilection for the family firm, which is not answerable to stockholders and not transparent to outsiders.  

Most observers, however, believe that Egypt's corruption problem comes from the government's hesitancy in adjusting to a market system. Ethics are not taught in business school, says Abdel Aziz Hijazy, former prime minister and director of an accounting firm. Nor does the state make any attempt to steer investors to reputible consultants or accountants, letting them fall easily into the hands of fly-by-nights and influence peddlers. Failure to pay bureaucrats a living wage, failure to reform the license and tax system, failure to consolidate the body of laws -- all these are frequently-cited factors. Management in many companies is also to blame, Hijazy says, enacting few internal controls and allowing huge wage imbalances between top-level and bottom-level positions.  

Enforcement is also a problem, particularly in the financial sector. "The Central Bank really can't afford to supervise the banks as they should," says Mohieddin. "They have 200 supervisers in the control department, and 81 banks with thousands of branches. There's no on-site regulation, and they also don't respond to allegations [of malpractice]." Likewise the Administrative Superviser, the elite body in charge of monitoring public money. An article in Al Destour pointed out that the office employs 300 staff -- a third of which are clerical -- to keep watch on the entire government and public sector. Al Destour blamed the vastly insufficient Superviser on former president Anwar Al Sadat, who cut the agency down to size after they went after his brother.  

There's a final problem, the opposition argues -- lack of democracy. Officials aren't accountable. Public sector bosses run loose ships. On-site inspectors are lazy. Enforcement agents are reluctant to chase after leads, for fear that they will tread on powerful toes.  

What can be done? Transparency International advises five main angles of attack in combatting corruption. Minimize bureaucratic discretion (under discussion, but Egypt hasn't done this yet). Simplify procedures (underway). Pay bureaucrats a living wage (too expensive). Rotate jobs and involve outsiders in government decision making (this has not been discussed). Keep the public aware of government procedures and their rights as citizens (this has not been discussed, and probably never will be).  

Hijazy advocates pre-emptive measures -- giving would-be businesspeople a stronger sense of what is ethical and what is unethical. The number one priority would be instituting a business ethics requirement in faculties of commerce, followed up with seminars, publications, and PR campaigns on ethics -- with an emphasis on the religious angle.  

Others are setting up watchdog organizations. A group of academics and consultants, working through the non-governmental Ibn Khaldoun foundation, are looking to set up a local branch of Transparency, with the goal of watching the public sector from the outside. Zaqaziq university's mass communications department is also beginning to train journalists how to obtain documents and recognize illegal transactions.  

There's a final school of thought -- legalize baksheesh, allow bureaucrats a legal means to augment their pitiful salaries. Hijazy claims he started advocating this in the 1970s -- every agency could charge a small price to issue a permit, five or ten pounds, which would then be distributed among the agency's employees (many agencies currently charge fees, often exhorbitant, but the money goes back to the central office).  

Egypt's corruption rating will probably improve considerably in the next few years. The new government of Kamal Al Ganzouri has cracked down on some of the more egregious cases. New, tighter laws are being prepared, and businesses are becoming more transparent to woo investors. These reforms, however, are aimed at the top end of the market -- the chances of the anti- corruption initiatives trickling down to the local police station or the neighborhood council are, unfortunately, still remote.