News Focus

June 2010
A Smarter Way?
New “smart cards” are supposed to revolutionize the country’s subsidy system, but the early returns have been patchy.

By Michael Kaput

It is roughly the size of a credit card, and with one swipe it will change the way millions of Egyptians go about their daily lives.

Come July, if all goes according to plan, almost 12.5 million families here will have electronic cards that will be the key to accessing scores of social benefits, from food subsidies to health care.

But the government, officials concede, has set ambitious targets. Time lines are tight — another 5 million cards must be distributed by July 1 — and the technology is complex, leaving little wiggle room for a program that will cover essential services.

At the end of last month, 7.5 million cards, one per family, were in circulation across the country, a drive that is quickly pushing paper ration and pension cards into the trash bin.

Its part of an effort to streamline the delivery of government services to the public that could eventually see everything from the distribution of petrol to buying metro tickets go electronic.

Two services that use the new smart cards are already active: A rationing function that tallies a family’s allotment of subsidized sugar, oil, rice and tea, and another that distributes social solidarity pensions. A third, electronic health insurance, is undergoing pilot testing.

The technology could mean not only big savings for the government, but also huge advances in how services are delivered in both the private and public sectors.

In some places, though, the strain is showing. Last month, the scene at one card distribution center in Maadi was chaotic, with dozens of people crowding the distribution window and angrily waving ID cards in the air and demanding service. The center accepts paper ration cards and puts people on track to receive the new smart cards.

“I have been coming for a week and still haven’t gotten a card,” says Rageb Mahmoud Hussein.

Because people rely on the card to collect basic services, the delay has gone from an inconvenience to a real problem.

“People are fed up,” says Hussein. “People can’t get food. The process is too long.”

The project, which began with a test run of about 90,000 cards in the Suez governorate in 2006, is run by a constellation of government ministries and private companies.

While the ministries of state for administrative development, social solidarity and civil aviation are behind the plan, the heavy lifting is being done entirely by a consortium of private companies.

The result is public services gone private: Every aspect of the program has been outsourced.

“We don’t own any of it,” says Tarek Saad Badr, program director for the national databases program at the administrative development ministry, which is helping spearhead the smart card program.

Although the new cards are poised to reshape the way the public accesses government services, those services will remain unchanged.

For food subsidies, the new system works in largely the same way as the old: Families bring the smart card to their grocer, who checks their monthly allotment of subsidized goods and then distributes them accordingly. But instead of tallying numbers on paper cards and in store ledgers, the smart card will be swiped at the store’s point-of-sale machine (akin to a credit card reader) and a database will crunch the numbers and update quotas.

Access to social pensions will follow a similar process. The card can be swiped at one of the 4,000 Egypt Post offices across the country. Much like the old system, pensioners swipe the cards and receive cash in return. Most of the offices are now equipped to distribute social pensions, according to Waleed Sadek, a business development consultant at SMART Card Applications Co., one of the companies involved in the project.

The early returns have been positive, say those involved in the program.

“I think it is a good system,” says Khaled Ahmed, manager of the Egypt Post branch on Mohamed Farid Street in Downtown Cairo. “It organizes the process of handing out subsidies to the people, unlike the prior system, which was not very specific.” Ahmed’s branch is currently processing cards for about 1,900 customers which will be distributed at the end of May and beginning of June.

While smart card technology is nothing new, the infrastructure behind the system has techies and technocrats alike buzzing with ideas for future applications that could span public and private sectors. The smart card network cross-checks family information with national databases every time the card is swiped. That allows up-to-date compilation of key statistics on everything from how many people are in a family to how much sugar they bought last month to what level of subsidized healthcare they should be receiving.

“The number of applications that can be implemented using this infrastructure we are now building with the government is basically limitless,” Sadek says.

With that information at their fingertips, the government can pinpoint things like which subsidized goods are most needed in the market and accurately track how they are being distributed, reducing both abuse and waste along the subsidy supply chain, which the administrative development ministry admits is rife with corruption.

Less corruption and more efficiency directly translates into savings. The government estimates it will save over 20% on food subsidies alone through precise placement of goods and reducing corrupt practices, says Sadek.

“When you talk billions, that’s a lot,” he says.

The technology’s future applications could make those savings look like pocket change. According to Sadek, one such application could be used to handle the monthly salaries of civil servants electronically. With nearly six million people in Egypt employed by the government, that would free up more cash for circulation and improve the efficiency of civil servant payments.

Beating the System

Despite the fact that many of the smart card users are uneducated, they have taken to the new technology well, says Sadek. “We have people who are totally illiterate and can still handle the terminals.”

But more of a concern than whether people can be taught to use the system is how to regulate the way they use it.

A common practice for some grocers under the old subsidy system was to engineer an extra paycheck by overstating numbers to receive monthly quotas of goods at subsidized prices without distributing them to citizens.

These could then be sold on the black market for significant profit, multiple times their subsidized price.

This duplicity — more goods paid for by the government and less actually distributed to people — is one thing the state hopes to eliminate with the new program.

But that’s going to cut into lucrative profits made by grocers playing the old system. According to the administrative development ministry, grocers were scraping a meager 1.5% profit on the sale of subsidized goods under the old system, leaving little question as to why corruption blossomed.

Alia El Mahdy, economics professor and dean of the political science and economics department at Cairo University, says that the government needs to offer an incentive to curb corrupt practices.

Beyond acknowledging the need to make the new subsidy system a win-win for both grocers and citizens, the administrative development ministry has not yet outlined incentives that will directly benefit grocers.
Private Matters

The smart card project is unique because it’s largely a private venture.

The three main companies behind its implementation, SMART Card Applications, the Aviation Information Technology Company (AVIT) and FirstData, are overseeing the process in its entirety, from manufacturing to distribution, training and database management.

Some of these tasks are further outsourced to companies like MasriaCard, a regional smart card provider that has already manufactured 2.5 million cards and has plans for an additional 4.5 million, according to MasriaCard project manager Rana Nasie.

Amr Ahmed, a data center and technical support manager at AVIT, says the project is nearing completion, with Cairo being the last major area to see smart cards go live.

But whether the entire country will be covered by the July deadline is anyone’s guess. And getting them to those who need them in a timely fashion is something else entirely.

For Badr, however, the project’s goals are crystal clear. “Either we have [all the cards out on] the first of July, or we go home.” bt