Feb. 28 (Bloomberg) -- For 16 days earlier this month, not a single shipping container moved into or out of Egypt’s principal port for Asian trade.
Laborers at Ain Sukhna, on the Suez Canal east of Cairo, were busy protesting management’s plans to continue using short-term employment contracts. The roughly 1,200 striking dock workers, who slept each night in empty containers while campaigning for permanent jobs with port operator DP World Ltd., hung a white banner reading “Our one demand is to be hired,” alongside a large Egyptian flag.
“I’m not demanding more money,” said Mahmoud Mustafa, a married father of two girls who earns the equivalent of about $500 a month. “I just want stability for myself and my family.”
The standoff, which ended Feb. 17 when the government agreed to give the strikers jobs with a new state-controlled port company, showcased workers’ growing activism two years after the overthrow of President Hosni Mubarak. More than 1,000 independent unions are colliding with an Islamist government that has been unable to arrest the economy’s deterioration and is pushing to prevent the rise of alternative political forces.
“The government’s ability to control workers ended with Mubarak,” said Mohammed Abdeen, 36, general coordinator of legislation for the Egyptian Federation of Independent Trade Unions (EFITU) in Cairo. “It doesn’t exist anymore. You can’t control them.”
For investors, labor’s strength -- and its weakness -- may prove equally vexing. Egypt’s workers are strong enough to interrupt commerce, yet too divided to force a resolution of the country’s political stalemate.
Since the 2011 revolution, Egyptian workers have launched more than 3,000 strikes or demonstrations over wages, working conditions and political demands, Abdeen said. Ceramics workers, police officers, teachers, municipal tax collectors and doctors all have walked off their jobs in recent months, even though the government doesn’t recognize their unions as legal.
Labor discontent has been building since 2004, when Egypt launched a wave of market-oriented policies that included the sale of state companies to private investors. Between 2003 and 2008, public sector employment fell by more than 270,000, according to a 2011 International Labor Organization report.
As Egypt averaged 7 percent annual growth in the three years before the 2008 financial crisis, the promise of a compliant state union and low wages was instrumental in attracting investors from the U.S., Europe and the Persian Gulf. Foreign direct investment soared to more than $13 billion in 2008 from $2 billion four years earlier.
Even so, three fledging independent labor unions emerged and major strikes, including in the textile center of Mahalla, shook the regime.
With Egypt now trapped in a protracted transition from dictatorship to democracy, foreign investment has evaporated. The prospect of continuing protests and work stoppages represents “significant deterrents for potential investors,” concluded a Feb. 8 report by Maplecroft, a risk-management firm based in Bath, U.K.
In the months ahead, transport strikes with “the potential to cause considerable disruption to business operations and supply chains” are likely, the report added.
Magdi Tolba, chairman of clothing maker Cairo Cotton Center, frets over a “breakdown of discipline” in Egyptian factories as endless political debates distract workers from their assembly lines. “Someone has to go and say: ’enough is enough,’” he said. “The economy is bleeding.”
The government is taking steps to improve Egyptians’ standard of living, Finance Minister El-Morsi El-Sayyed Hegazi told reporters in Cairo today, including raising the income-tax exemption to 12,000 pounds ($1,781) from 9,000 pounds.
Still, he said, the current strikes and port closures are hurting efforts to revive the economy: “If it affects the economy, it also affects those workers who want to work.”
Labor unrest is just one element of the country’s broader disorder. From the capital to Suez Canal ports, Egypt in recent weeks has come close to unraveling. Protests are a routine occurrence in Cairo’s iconic Tahrir Square where a burned-out police van symbolizes authority defied. Lawlessness even touched Central Bank Governor Hisham Ramez, when five armed gunmen on Feb. 13 stole his official car en route to collect him for work, killing one of his bodyguards.
At the Sukhna port, also idled for two weeks during a November labor dispute, the recent work stoppage blocked imports of raw materials for plastics, petrochemical and textile factories and exports of phosphates, marble and citrus fruits, said Ayman Badawy, commercial manager for Dubai-based DP World. The strike also deprived the cash-strapped government of more than $2 million a day in customs duties.
“We’re trying to encourage investors to come to Egypt,” Badawy said. “By all of these things happening, no one will come here and invest.”
The benchmark EGX30 stock index is less than half its 2008 peak and the premium investors demand to hold Egyptian debt over similar-maturity U.S. securities has more than doubled since the January 2011 start of the uprising.
President Mohamed Mursi, elected in June, and his Muslim Brotherhood allies have been no more hospitable to union organizing than was Mubarak. The linchpin of the government’s economic plan is a proposed $4.8 billion International Monetary Fund loan that would require tax increases and social benefit cuts the unions oppose.
On November 25, three days after declaring his actions beyond judicial review, Mursi moved to seize control of the state-sanctioned Egyptian Trade Union Federation (ETUF), the only legal outlet for worker representation. A presidential decree forced more than half of ETUF’s executive board into retirement and replaced them with Brotherhood members.
Labor activists describe the move as part of a broader campaign to “Brotherhood-ize” all Egyptian institutions. By taking over the wealthy state union, Mursi can attract workers to its docile ranks with benefits such as subsidized vacations, said Ahmed Borai, the former manpower minister. He resigned in late 2011 after a transitional military-led government refused to grant legal status to independent labor federations.
Egypt’s state union, which has automatically drawn dues from millions of workers’ paychecks since 1957, enjoys an enormous financial edge over independent unions, which usually can’t get employers to recognize them and deduct dues.
“The Brotherhood still thinks in the same way Mubarak did and the same way Mubarak’s predecessors did,” said Kamal Abbas, head of the non-governmental Center for Trade Union and Worker Services in Helwan. “Their approach is to dominate the unions.”
Abbas, who was jailed for three months after leading a 1989 strike at a steel factory in the Cairo suburb of Helwan, said he suffered kidney damage during a beating by security forces during a 2005 protest. Though workers can more easily protest today, the government is steadily clamping down, he said.
The new constitution describes strikes as “aggression against the right to work” and treats them as criminal acts. In September, a court in Alexandria sentenced five union leaders to three years in prison for leading a strike at the Alexandria Port Containers Co., the harshest term for union activists since Anwar Sadat’s 1970-81 government, according to Joel Beinin, professor of Middle East history at Stanford University near Palo Alto, California.
In the past six months, 650 workers were dismissed from their jobs for union activities -- almost 12 times the number cashiered for similar reasons during the final five years of Mubarak’s tenure, said union activist Abdeen. “Independent unions and their members have no legal protections,” he said.
While capable of disrupting the economy, already limping along at its slowest growth rate in 20 years, a divided labor movement can’t pose an existential threat to the Islamist government. EFITU, formed in Tahrir Square five days after the Jan. 25, 2011 anti-Mubarak uprising began, and the Egyptian Democratic Labor Congress vie for leadership of the independent union movement.
“The labor movement is missing, first, the solidarity; second, the strategic planning; and third, their natural leaders are overwhelmed by the political atmosphere,” said Marian Fadel, Egypt program officer for the Solidarity Center, which is affiliated with the AFL-CIO U.S. labor federation. “They’re not focused enough on how to build this movement on the ground.”
For workers, who profited little under Mubarak, the last two years have brought scant improvement in living standards. The revolution’s disappointed expectations were on display on a recent afternoon in Tahrir Square.
Hamed Mahmoud, 57, worked as a bartender at the Sheraton Hotel in Heliopolis until the dwindling tourist trade cost him his job. Now, he sometimes works in a local candy shop, earning 35 Egyptian pounds, or a bit more than $5, for a 12-hour shift.
He says his employer denies him breaks and confiscates his tips. “No matter how many tips I made, I only get paid 35 pounds,” he said, visibly tearing in frustration.
With unemployment at 13 percent -- compared with less than 9 percent before the revolution -- and inflation rising, Egyptians are growing poorer. In September, 86 percent of households surveyed reported insufficient funds for food, shelter, and clothing, up from 74 percent in June, according to the Egyptian Food Observatory, a joint project of the government and the World Food Program.
Another man in the square, Ahmed Samy, 53, said he struggles to feed his family of five on a monthly civil servant’s pension of 370 pounds.
“I’ll do any job. I’ll run errands. But there’s no real work,” he said.
Since Mursi’s Nov. 22 constitutional decree, the Egyptian pound has surrendered about 10 percent of its value against the dollar. The decline, which makes imported goods more expensive, helped push up prices an annualized 6.3 percent in January.
Traders expect the pound to lose an additional 16 percent of its value over the next year, according to non-deliverable forward prices. So price increases are likely to escalate to an annual rate of 8.3 percent, according to the median forecast of economists surveyed by Bloomberg.
Coupled with a sinking Egyptian currency, the IMF-decreed policy changes will only make life more expensive -- and the clash between government and labor more dangerous.
“The Muslim Brotherhood’s policies will impoverish the Egyptian people even more,” said EFITU’s Abdeen, adding: “Egyptian workers won’t go back. They won’t retreat.”
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