The Malaysian Insider :: Features
The Malaysian Insider :: Features |
| Food price rises put restive Egypt on edge Posted: 13 Mar 2013 07:44 AM PDT  A worker puts dough into an oven to be baked in a bakery in Cairo. — Reuters picCAIRO, March 13 — With croissants, baguettes and bagels spilling off metal trolleys at the bakery where Mohammed Alif works in central Cairo, food is not scarce, but profits certainly are. The Egyptian pound has lost more than 8 per cent of its value against the US dollar since the end of December as concern deepens about the state of the economy, which is being undermined by political instability and rioting. This, along with a general rise in global food prices, has pushed up the amount which bakeries like Alif's have to pay for imported ingredients traded in dollars, which in turn risks feeding back into discontent with the new leadership. The spectre of steep food price inflation driven by a weaker pound is of particular worry to President Mohamed Mursi as he grapples with spasms of unrest two years after the uprising that toppled Hosni Mubarak and was itself partly driven by a sense of mounting economic hardship in a country long steeped in poverty. Flour and sugar are 50 per cent more expensive than they were a year ago, said Alif, and for now the bakery feels it has no choice but to absorb the increase rather than passing it on to customers: "I can't make it more expensive because people cannot pay," he said, pausing between filling shelves with freshly baked rolls and serving a steady flow of shoppers on the pavement. Higher prices would drive away customers, and there is a bigger underlying risk: if prices were to rise too quickly or if supply were to start thinning out, there could be even more unrest in a country with a history of bread riots. That is one reason why, despite a heavy burden on the state budget, Mursi's government is maintaining supplies of heavily subsidised flat bread, which is sold for less than 1 US cent per piece and is aimed at the poor. But there are no subsidies for products like those sold in Alif's bakery, which caters to relatively affluent customers, so his and other businesses bear the burden of price rises. Some bakers have started shrinking the size of loaves and cakes in an apparent attempt to protect margins. As data released by the government this week showed, others have started passing on part of their higher costs to consumers. Annual consumer price inflation in Egyptian cities leapt to 8.2 per cent in February from 6.3 per cent in January, reaching the highest level since May. Food and drink prices rose 9.3 per cent year-on-year last month. Nancy Fahim, economist at Standard Chartered in Dubai, predicted the weakness of Egypt's economy may limit any rise in overall inflation, however; average national inflation in the current fiscal year to June may yet be lower than last fiscal year's average of 8.7 per cent, she said. But Fahim added that inflation coupled with high unemployment, officially estimated at 13 per cent, was likely to pressure the government into maintaining subsidies, despite their increasing burden on state finances. The government spends over US$5.5 billion a year on food subsidies, which also cover items such as rice, oil and sugar. Curbs on bread subsidies triggered severe riots in 1977, and as recently as 2008, Mubarak faced protests over shortages. In 2003, a sharp decline in the value of the pound caused the price of non-subsidised bread to soar, leaving more Egyptians buying the cheaper, subsidised flat loaves and triggering supply shortages. Sick economy Despite the weakness of the currency, bread supplies appear ample. Still, wheat imports are down sharply this year as the economic crisis makes it harder for Egypt to arrange payments; between Jan. 1 and Feb. 20, the country bought around 235,000 tonnes, roughly a third of what it purchased in the same period a year ago. Wheat traders in Cairo said Egypt appeared to be running down strategic stocks of nearly 2.3 million tonnes to avoid having to use foreign exchange for imports. In the next Egyptian harvest, which is expected to start at the end next month, the government aims to raise the amount of local wheat which it obtains to 4 million tonnes by boosting its purchase price by 5 percent. In previous years, its targets ranged between 2.4 and 3.7 million tonnes. But the success of this strategy will depend on weather, bureaucratic efficiency and other factors. As the world's biggest wheat buyer, Egypt relies heavily on imports to feed its 84 million people; half of the wheat they consume is imported. In 2010/11, one Egyptian in four was living beneath the national poverty line of US$1.65 a day, according to UNICEF. Economists say many more live just above the poverty line. For Cairo shopper Mohammed Ali, price rises in recent months have left only enough money for basic necessities. Standing at a bread stall on a busy street in the capital, he said he could not even think about spending cash on luxuries such as travel. "Food prices are rising, the economy is sick and the politicians just sit on their chairs," he said, miming a man lounging back and stroking his chin. "I have just enough money for food, but nothing else," he said, leaving with a small plastic bag stuffed with rolls to feed his family. Bakers who normally receive government subsidies to cover low-cost loaves and higher fuel prices say they have not been paid as regularly as before. The government owes such bakeries payments dating back six months, the head of the bakers' association said in February, threatening strike action if the problem was not solved. Prices at general stores have also gone up. Alfa Market, a supermarket chain catering to wealthier Egyptians, has been forced to raise prices several times over the past two months, owner Mohamad Zada said. The price of cooking oil has gone up on three occasions in that period. "There is a 20- to 30-per cent increase in prices ... for everything," he told Reuters. For now, Zada has not heard complaints from customers about the price rises, but Alfa has been careful to limit the price of its bread, even though this is eating into profits: "People say changing the price of the bread would be a crime," he said. The fall of the Egyptian pound has also become a headache for Hatem Zidan, sales and marketing manager at milling company Flour Land, which produces flour, pasta and biscuits with imported wheat. In two months the price he pays for a tonne of flour has risen 16 per cent to 3,250 pounds. The volatility of the exchange rate is making his work next to impossible, he said. "I can make a deal and then I have the surprise that I lose money. Now I am working day by day," he said. "I cannot make contracts for three months with businesses like I used to." Samir Radwan, an economist and former finance minister, says Egypt must learn from its troubled past. "The history of revolts in Egypt is the history of the price index," said Radwan, citing a pattern dating back to 1919. "I worry a lot about this. "Poor people really have their back against the wall." — Reuters |
| Norway shows the way with electric cars, but at what cost? Posted: 13 Mar 2013 06:56 AM PDT  A driver leaves a free car park reserved for electric vehicles in Oslo February 25, 2013. — Reuters picOSLO, March 13 — Norway's buzzing little market for pure electric cars has in its very success shown the severe drawbacks to a model that relies on public subsidies worth as much as US$8,200 (RM25,490) per car, every year. Car makers like Nissan, Mitsubishi, Peugeot Citroen and Tesla Motors see Norway and its 10,000 battery-powered vehicles as a reason for optimism in otherwise gloomy terrain. Pure electric cars made up 3.0 per cent of February car sales in Norway, with a population of 5 million, compared to fractions of one per cent in most nations. In the United States, for instance, they made up just 0.1 per cent of all car sales in 2012. But the factors that have made the car sell in Norway show how hard it would be to make the proposition work anywhere else: the car can't go long distances and isn't economical unless the government kicks in hefty incentives like tax breaks, free road tolls and free parking. Ironically, experts say, electric cars may not even be helping the environment. "Norway's an oasis in a huge desert," said Peter Schmidt, editor of Automotive Industry Data Ltd. in England. "But it's an example can't be followed - it only works because Norway has a 'supertax' on normal cars." State subsidies, intended to promote a less polluting form of travel and cut greenhouse gas emissions, help bring the price of buying the top-selling electric Nissan Leaf in Norway down to 240,690 crowns (RM748,185), competitive with the 1.3-litre Volkswagen Golf at 238,000 crowns. But in Britain, for example, while the Leaf is cheaper at 23,490 pounds (RM109,199), including a 5,000-pound government subsidy, the same Golf sounds a bargain at 16,285 pounds. Leading the way Norway's centre-left government says small nations can lead the way for others like the United States, which is the world's largest market for electric cars with 14,687 sold in 2012 but which has backed away from a goal of putting a million electric cars on the roads by 2015. But its example shows the huge cost involved - one that only a country like Norway, which has escaped the global economic slowdown thanks to vast revenues from oil and gas, can afford. Norway's tax breaks on the purchase for electric cars are worth almost US$11,000, or US$1,400 a year over a car's lifetime, according to a study by Statistics Norway analyst Bjart Holtsmark. Commuters driving into Oslo from the surrounding areas save an annual US$1,400 in road tolls, can get free parking worth US$5,000 and avoid other charges of US$400. It all adds up to as much as US$8,200 per car, per year, before taking account of the benefit of driving in the bus lane rather than sitting in a queue with other cars. The incentive scheme is due to run until 2017, when it will be reviewed. "This is a good introductory offer," said Norwegian Environment Minister Baard Vegar Solhjell. "It's a way to spread ideas and it also creates a lot of interest among the car companies," he said. With three young children, Solhjell can't find an electric car big enough for his family and drives a 7-seat Ford Galaxy, however. Even some Norwegian electric car owners have misgivings about the state's largesse. "The benefits are ... too good. You can take bus lanes, get free parking and it costs very little to refuel," said Ole Marius Lauritzen, 44, who lives 25 km outside Oslo and used to commute to his work at a bank by bus. Second car Like 40 per cent of other Norwegian households with electric cars, Lauritzen's blue Think City car, made by a now-bankrupt Norwegian firm once owned by Ford, is his family's second car. "It has to be the second car for the family, because it still has a limited range," especially in winter when the cold drains batteries, Lauritzen said as he recharged the vehicle for free in a snow-decked electric car park in central Oslo. Oslo has 446 parking places with free recharging and the municipality plans to add 800 more at a cost of 59 million crowns over the next four years. Drivers can also recharge at home. The range issue - many can only go about 100 miles or less without recharging - is a huge problem in countries like the United States, where long-distance driving is a way of life. One US study said 70 per cent of drivers surveyed wanted driving ranges of 300 miles before they would consider buying an electric car despite federal tax breaks worth up to US$7,500, in addition to state incentives. By encouraging people who can afford it to buy a second car instead of taking buses and trains, the electric car scheme may ironically be aggravating environmental problems and causing traffic jams, analyst Holtsmark said. Tesla Motors says its Model S car, due on sale in June, will be able to reach such ranges if driven correctly. "There is a huge opportunity here ... (for Norway) to set an example for the rest of the world," Tesla Motors' co-founder Elon Musk said in a speech in Oslo this month. Hurting, or helping? Experts say electrification with renewable energy is essential if rich nations are serious about goals of cutting greenhouse gas emissions by 80 per cent by 2050 - transport now accounts for about a fifth of all greenhouse gas emissions. European Union member states, for example, are aiming for at least 9 million electric vehicles by 2020, against less than 100,000 now. The group also wants 10 per cent of transport in the EU to run on renewable fuels by 2020 - such as biofuels or 'green' electricity, up from 4.7 per cent in 2010. On this issue, Norway again stands head and shoulders above the rest - almost 100 percent of electricity is generated from clean hydropower, so a shift from gasoline and diesel cuts pollution. But Norway is not the norm. Elsewhere, electric cars may cut pollution locally by eliminating exhaust but are often charged from electricity generated by high-polluting coal-fired power plants elsewhere. In fact, in places like China, the requirements for electric cars just add to environmental problems. Many Chinese power plants use coal with few filters, spewing out particulate matter - chemicals, acids and metals - that causes more pollution per km for electric cars than gasoline-powered cars, said Chris Cherry, an electric vehicle analyst at the University of Tennessee. "In China, electric vehicles may worsen health effects compared to normal cars," said Cherry, who was lead author of a study published in February in the journal Environmental Science and Technology. The policy also does not stack up in the market established to put some value on curbing greenhouse gas emissions. Holtsmark estimates that a Toyota Prius hybrid emits 0.6 tonne of carbon dioxide a year against zero for a Leaf. Scaling up the Leaf's subsidies means Norway is paying $13,600 to avoid a tonne of emissions, a stratospherically expensive policy since the right to emit a tonne of carbon dioxide costs about 4 euros on the EU's carbon market. Big gamble Norway's enthusiasm notwithstanding, many carmakers acknowledge the all-electric market has not become as mainstream as they hoped when they gambled billions of dollars on the technology. Carmakers are shifting from all-electric towards hybrids like the Prius, which has a gasoline engine backed up by an electric motor that traps energy when the brakes are applied. "Demand for electric cars isn't where we thought it would be," Francois Bancon, Nissan's upstream development chief, said at the Geneva car show last week. "We're in a very uncertain phase, and everyone's a bit lost." Electric car owners in Norway are already starting to worry about the long-term future of their investment. "If the bus lane is closed the economic aspect of the car will be terrible," said Are Paulsrud, who drives a Mitsubishi electric car. "The car cost 250,000 crowns and if the bus lane is closed ... I won't be able to sell it." — Reuters |
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