November 10, 2007
MENA Reform: Dead Hand of the State & Great Cairo
Returning to issues financial and economic, and in homage to our classic Cairo building post from 2005, I draw attention to a fine, if short, article in The Financial Times on the nefast influence of the dead hand of the Egyptian state, and the politics of pious posturing on the living standards and housing quality in Cairo, the Great Dump.
A few key items to highlight, as they are general lessons for the region, and indeed for emerging markets, largely around the failure of socialist and unrealistic, indeed wooley headed "progressive Left" interventionism.
But for most Egyptians, finding affordable homes remains a daunting challenge. Housing problems are exacerbated by decades of flawed policies and poor planning that have made for chaotic and degraded cities.
In Cairo, it has meant that both rich and poor often have to rely on their own resources to build not just their homes but their own districts. Top earners opt frequently for the private gated enclaves, while the poor live in illegally built suburbs reclaimed from the surrounding countryside.
The city is now ringed by vast areas of informal housing. These are overcrowded forests of unrendered blocks crammed so close together that their balconies almost touch above streets that are too narrow for cars to pass.
Experts estimate that well over half of Cairo's 16m people live in unplanned districts that have sprouted in breach of laws banning construction on farm land.
"It is only a slight exaggeration to say that informality is the defining characteristic of the modern Egyptian built landscape," says David Sims, an American housing expert who worked extensively in Egypt. He cites studies which found that the population of the informal areas of Cairo has been growing at more than three times the rate of the formal districts of the city.
In Bashteel, a teeming district on the western outskirts of the capital, shabby apartment blocks huddle together, keeping the unpaved streets below in perpetual shadow. The fetid smell of rubbish permeates the dusty air.
"It's only when there is an election that we can beg our member of parliament to get the government to pave a main street," says Galal Farag. "No one organises the traffic here and there are no state schools."
In Bashteel, as in other informal settlements around Cairo, the state eventually had to extend utilities such as water, electricity and sewerage. But the proliferation of unplanned districts is evidence of the failed housing policies of 30 years. Unable to provide affordable housing for the poor, reluctant to relax the ban on construction on agricultural land, and lacking the authority to bulldoze illegal buildings, the state simply looked away while the informal areas mushroomed. At the same time, government-built low-cost housing in new desert towns near Cairo failed to attract a critical mass of residents because of poor transport, the absence of services and restrictions on opening the types of small business that flourish in areas like Bashteel.
... "But the chance of the new towns working has been undercut by terrible planning and unnecessarily high -standards."
The article in full and its companion, multimedia article are worth reading and of course FT is worth its subscription (although it is bloody slow to improve an outdated website one must confess
The main observation to highlight from the bolded sections are:
(i) the futility of over planning in emerging markets - the perfect (oh we have to be like Europe) becomes the enemy of the good (or the adequate);
(ii) the degree to which slavishly looking to Western activists standards (as well as aspirations domestic) and weak domestic political viability / legitimacy impairs taking hard decisions to the general detriment of all - i.e. choosing to relax standards for example
(iii) the degree to which excessively high standards have the perverse effect of driving down real applied standards.
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Lounsbury, as a point of comparison I'd be curious to hear your take on Morocco's social housing policy under M6, notably the decision to make Addoha a "national champion" of social housing construction (with all the stock market manipulation that came with that) and the more general idea of promoting social housing to get rid of bidonvilles and better police poor areas.
Going back to Egypt, the FT piece could have mentioned the spectacular rise of real estate companies such as SODIC and Talaat Mustafa Group. It's also interesting to know that two of the current "reformist businessmen" ministers in Egypt have portfolios closely related to this issue: Minister of Housing Ahmed Maghrabi and Minister of Transport Muhammad Mansour. But surely these "too rich to be corrupt" ministers, as they are often described, have absolutely no improper relations with their families' investment fund, Mansour-Maghrabi Investment and Development, which owns the Palm Hills development and has been bidding at new land plots in the greater Cairo area recently.
Finally, it's hard to see how planning would be a bad thing in Egypt. The whole problem of the ushuiyat (informal settlements) is that the state did not plan things. Government is the only force with the resources to coordinate housing and infrastructure issues for the poor (the rich will pay for it themselves, as we have seen), I'm not sure why it would be futile for Egypt to have realistic planning policies rather than none at all. The problem with Egyptian planning is that it has largely been inflexible and does not support major policies - hence the rather stupid lack of good transportation aside from microbuses from central Cairo to Sixth of October city, which had been a "projet phare" of the government. The right thing to do would be for the government to invest in major, long-term transportation infrastructure to encourage people to live there, which probably means subsidizing the cost of transport for a while at least.
Posted by: arabist at November 11, 2007 06:15 AM
Well, I am no expert in the Moroccan social housing experiment, but impressionistically one of the binding constraints seems to be State releasing land to social housing developers in anything like a timely manner (and per standards rather than favourites). Certainly Miloud Chaabi has made such complaints in a very public way, and he normally seems fairly straight.
Other than that, it seems to attract real private sector building interest, and I have heard assertions from the private sector that if the tax regime is held in place and the State "got out of the way" in terms of giving land for specifically social housing developments, they could do it.
Maybe. Maybe not, could hardly do worse than the State to date and conceptually I think the approach is right, but is being executed in a typically weak, wishy-washy Makhzenian risk-averse bribe prone manner. But again, I don't look at social housing deals in Morocco (elsewhere I do, and am working on such a financing, but Morocco, no) so I can not pretend to an informed comment.
As for Addoha, you're mixing apples and oranges here. The Addoha listing is not per se an issue of it being a "national champion" (and is it? see CGI).
No Addoha's prime place and the funny stuff on the IPO and subsequent trading come from two or three influences utterly unrelated to social housing qua social housing:
(i) First real estate development listing in the market - the entire Arab region (and emerging markets) suffer from an excessive thirst for putting money into stone. Small investors are more likely to understand the business (or feel that they do), and traditional money loves RE Dev. Every RE listing across the entire Arab world has gone bonkers;
(ii) Poor Market Regulation: the Moroccan market regulator is shit. It's head is ... well I have nothing good to say about Taarji. Sycophantic time serving cunt who is at once weak and prone to superficial posturing. Of course to be semi-fair, the market regulator lacks real powers (and Taarji is too weak to use well what it has), and MoF under Oualalou blocked changes to strengthen (or allowed others to block, same same in my mind).
(iii) Weak market standards, knowledge that the regulator is weak and afraid, coupled with eEnormous market demand for new paper, regardless of its provenence..... created and continues to create an environment where manipulation is the "order of the day."
Addoha's stock market performance in general is an utterly separate issue if tangentially related only by the issues of poor gouvernance.
As for planning, that is not the issue. Planning and control, state directed and led development or market oriented development.
Inflexibility and poor planning are the hallmarks of control oriented "over planning" such that you get October 6s and vast "informal cities" all at once.
Posted by: The Lounsbury at November 11, 2007 07:38 AM
I was curious about what are some concrete examples of the FT article refers to as "unnecessarily high standards" - preference for "model" state-planned residential communities over pragmatic deregulation of rules about agricultural land/provision of transportation, water and power to anyone who was willing to set up new housing settlements?
I thought the article might also have tried to weave in the obvious political appeal of informality into the analysis, i.e. revenue from bribes needed to get the authorities to regularise settlements and not bulldoze them, while keeping up appearances of populism by not touching old rent controlled properties in the heart of the city. It's a common enough problem throughout the third world but the Egyptian government would seem to have precious little incentive to invest in "social housing," given that it has more quick and dirty ways of getting votes.
Posted by: SP at November 11, 2007 10:00 AM