Tuesday, November 29, 2011

Iran: A Natural Gas Giant

Updated September 2013

In recent days and weeks, Iran has found itself in the news on a fairly regular basis, particularly now that it appears to be making overtures of "peace".  Iran is often overlooked as an energy producing nation, while most people are aware that Iran is a member of OPEC, they are not aware of the significance of Iran's oil and natural gas reserves.  Hopefully this posting will put Iran's place in the energy world into context.

Let's open with some background information on the country.  Iran is located along the north shore of the Persian Gulf, a very strategically important geographic location since the country is in partial control of the entry to the Gulf of Oman, the narrowest part of the access and egress from the Persian Gulf.  Iran is not an Arab county, the majority of Iran's population of 77,891,000 people are Persian.  Iran has a very young population; the median age of both males and females is only 26.8 years compared to 36.9 years in the United States.  Iran's economy relies heavily on the oil and natural sector which provides the majority of government revenues.  Iran suffers from one of the world's highest unemployment rates (139th out of 199 countries) with 13.2 percent unemployment in 2010.  Surprisingly, Iran's government is one of the most fiscally responsible in the world, in 2010, Iran's government ran a budget surplus that reached 6 percent of GDP (11th place in the world) and public debt is only 16.3 percent of GDP, enviable by any standard.

Now let's look at Iran's main industry, oil and gas.  Iran is one of the world's leading producers of both natural gas and oil; it is OPEC's second largest oil producer and exporter after Saudi Arabia and, in 2012, was the world's third largest exporter of oil after Saudi Arabia and Russia, despite the imposition of sanctions that pushed production down by 17 percent from the previous year.  Here is a map showing Iran's main oil and gas fields and pipeline infrastructure.  Note that the vast majority of the country’s producing oil and gas fields are located along the Persian Gulf.  Note the huge South Pars/North Dome gas field (in red); this is the world's largest natural gas field shared by Iran and Qatar:

In this posting, I’m going to focus on Iran’s natural gas reserves.  Let’s start out by taking a look at the world's top natural gas reserve holders:

As I mentioned earlier, Iran and Qatar jointly own the North Dome Field and South Pars Field, a wonder of the natural gas world.  Here's a more detailed map of the fields:

The combined field was discovered in 1990 by the National Iranian Oil Company (NIOC), the second largest oil company in the world after Saudi Aramco.  It covers an area of 9700 square kilometres of which 3700 kilometres are situated in Iranian territory.  The field is part of the north-trending Qatar Arch with most of the gas trapped in Permian-Triassic formations.  The total reserves for the field are estimated to be around 2000 trillion cubic feet (TCF) and it contains an additional 50 billion barrels of condensate.  With in-place reserves of 360 billion barrels of oil equivalent, the field is larger than the world's largest oil field, Ghawar (170 billion barrels of oil-in-place) located in Saudi Arabia.  It is anticipated that the gas recovery factor is about 70 percent resulting in total recoverable gas reserves of 1260 TCF.  Using a 70 percent recovery factor results in the combined field containing 19 percent of the world's total gas reserves.   Interestingly enough, the fields also contain the world's largest reserves of helium totalling 10 billion cubic metres or about 25 percent of the world's total helium reserves.

Let's look at Iran's share of this elephant.  Iran owns 500 TCF of gas-in-place and approximately 360 TCF of recoverable gas.  This is 30 percent of Iran's total gas reserves and 5.6 percent of the world's entire proven gas reserves.  Let's step away from Iran for a moment to put these massive reserves into perspective.  Here is the data showing the changes in proved natural gas reserves since the 1920's for the United States from the U.S. Energy Information Administration:

Iran's proven natural gas reserves in this one field alone are nearly twice that of the entire United States. 

Iran's South Pars field also contains about 18 billion barrels of condensate-in-place with an estimated recovery factor of 50 percent.  The gas produced is quite rich in liquids, yielding approximately 40 barrels of condensate per million cubic feet of gas.  Wells are extremely productive with an average well producing 100 MMcf/day.  Production began in July 2003 at a total rate of 1 BCF per day plus 40,000 barrels of gas condensates.  Development of the field is taking place in 29 phases; Iran has signed development agreements with TotalFinaElf, Gazprom, Petronas, Agip, Statoil, Shell, Spain's Repsol, India Oil Corporation and China's Sinopec and CNPC among others.  As I will detail below, sanctions by foreign governments have caused many of the aforementioned companies to abandon their development agreements with Iran.  Here is a chart showing the phases, partnerships and current production levels along with Iran’s future plans for development:

The current political issues in Iran have impacted development of the South Pars field.  Here is the latest press release from NIOC outlining their plans for future development, noting the use of Iranian contractors and the end of control over projects by foreign contractors:

"Iran plans to reach the maximum level of gas production from the South Pars Oil Field, a year before the end of Fifth development plan, he added. “All eight remaining phases of South Pars were entrusted to Iranian contractors and the foreign contractors have no longer any control over South Pars projects, the official stated. 
Although Tehran is trying to rely on Iranian contractors but it has no plan to discharge foreign companies because they can strengthen Iran’s national development plan, Suri expressed. Tehran plans to be self-sufficient in the oil industry, furthermore, Iran has a program to export technical services, he added. “The today mission of Pars Oil and Gas Company is to maintain the current 250- million cubic meter production. It plans to develop the North Pars, Golshan and Ferdowsi oil fields as a second priority. 
The Fifth Development Plan sets guidelines for the socio-economic development of Iran. The plan is part of 'Vision 2025', a strategy for long-term sustainable growth. Under the plan, following annual approval of the government’s budget, the Central Bank of Iran will forward a detailed monetary and credit policy to the Money and Credit Council (MCC) for approval. Thereafter, major elements of these policies will be incorporated into the five-year economic development plan. South Pars is the biggest gas field in the world, shared by Iran and Qatar. The South Pars field is the name of northern part of the joint located in Iranian waters and the North Dome is the name of southern part, located in Qatari waters. South Pars field was discovered in 1990.” (my bold)

In 2009, the National Iranian Oil Company announced that China National Petroleum Company signed a $4.7 billion contract to develop Phase 11 (out of 29 total phases) of development of the South Pars field.  CNPC replaced Total as a partner; Total had signed a memorandum of agreement to develop the field in 2004, however, those nasty international sanctions interfered with Total's ability to develop the field.  Iran had become increasingly concerned that a portion of their natural gas reserves were being competitively drained by Qatar.  

China is also active in two exploration projects with NIOC as shown on these charts:

It's interesting to see that NIOC also partnered with Russian, Brazilian, Vietnamese, Italian and Spanish oil companies for various exploration projects throughout Iran.

Where is all of this natural gas going?  Iran’s domestic demand for natural gas has risen by 550 percent over the past two decades with consumption keeping pace with production increases.  Here is a graph showing the growth in both natural gas consumption and production:

In 2011, Iran produced roughly 5.4 TCF of marketed natural gas and consumed an estimated 5.4 TCF.  Of the 7.9 TCF of gross natural gas produced, 1.2 TCF was reinjected into oil reservoirs as part of Iran’s plan to increase crude oil production through the use of enhanced oil recovery (EOR) techniques.  Even with the massive and growing output from South Pars, it is unlikely that Iran will increase its exports of natural gas.  In fact, despite having the world’s second largest natural gas reserves, Iran imported about 0.7 BCF/day of natural gas from Turkmenistan to satisfy demand in the northern part of the country.

As an aside, in January 2011, Iran's Petroleum Minister announced the discovery of a new onshore natural gas field located in southeastern Iran near Assaluyeh in Bushehr province.  The field contains recoverable gas reserves of 7.4 TCF and an additional 7.7 million barrels of condensate in place.

One can readily see from this posting that Iran is sitting on a very strategic resource.  The combination of huge reserves of both oil and natural gas may well make Iran a very, very tempting target for military intervention in the future.  In this case, however, the issue is complicated by the presence of both Chinese and Russian economic interests in Iran’s natural resource base.

Monday, November 28, 2011

United States Debt Interest Scenarios - Have We Reached the Point of No Return?

In recent days, the world's bond market has been repeatedly shocked and awed by the very rapid rise in both long and short-term interest rates in several European countries.  Investors are demanding higher returns because they perceive an increase in risk, particularly in debt issued by Italy, Greece and Spain among others and now even France and Germany are feeling the sting of investor anxiety.

As Mr. Bernanke and his fellow bankers at the Federal Reserve have made quite clear, they wish to maintain an ultra-low interest rate environment for the foreseeable future.  I'm certain that their European counterparts wished the same thing, however, sometimes the market dictates what direction interest rates will move in rather than accepting the official rates posted by the Fed and their pals at other central banks around the world.  In light of the rather rapid move upward in European sovereign bond interest rates, I thought that it would be interesting to see what would happen if the United States suddenly found itself caught in the bond market squeeze and how higher interest rates would impact the ability of Congress to reach the ever elusive and never achieved goal of fiscal balance.

For your illumination, here are 10 year bond interest charts for France:


...and Italy:

Notice how in each case, there was a long period of relatively low and stable interest rates prior to the sharp recent rise in yields.  Just long enough to lull both bond traders and governments into thinking that everything was just fine.

Let's start by looking at the most up-to-date debt figures:

Now, let's take a look at the government's books to October 31, 2011 as found on the TreasuryDirect website.  Here is a screen capture showing the summary of Treasury Securities:

Notice that of the $9.75 trillion in marketable securities, the vast majority is in the form of Treasury notes (maturities between one and ten years) which make up $6.5 trillion of the total.  The remainder of the marketable debt is composed of Treasury Bills (up to roughly one year maturity) totalling $1.48 trillion, followed by Treasury Bonds (maturities between twenty and thirty years) totalling $1.03 trillion and TIPS (Inflation Protected Securities) totalling $715 billion.  The debt also includes a nonmarketable component, the vast majority of which consists of $4.72 trillion worth of intragovernmental holdings along with savings bonds that are not traded in a bond marketplace.  Intragovernmental debt is a rather sneaky form of debt; it is incurred when government borrows from federal trust funds such as the Medicare Trust Fund and the Social Security Trust Fund to help fund everyday operations.  Just think of it as robbing Peter (American taxpayers) to pay Paul (those in Washington).  At the end of October 2011, the total combination of marketable and nonmarketable debt reached $14.994 trillion.

Now let's look at how much interest was paid in the last fiscal year on that debt:

Now, let's break down Washington's current marketable debt into its constituent parts and look at the range of interest rates paid on each component and its average:

Here's a chart showing the average interest rate on marketable debt, non-marketable debt and the average interest rate on the combination of the two and by how much the interest owing on the debt has changed on a year-over-year basis:

To summarize, effective at the end of fiscal 2011, the average interest rate on $15 trillion of both marketable and nonmarketable debt was 2.859 percent.

For fun, let's look back at the October (since that is the end of Washington's fiscal year) average interest rate data back to the year 2000 and graph the data:

Notice how the average interest rate on the debt has generally declined since the turn of the millenium and how the interest rate in 2011 is at a decade-long low.  As well, the average interest rate for the decade is 4.539 percent, once again, the interest rate in 2011 is only 63 percent of the long-term average.

Now, let's go back to the debt.  As I noted above, the most up-to-date debt figure for the debt was November 23, 2011 and the debt on that day stood at $15.036 trillion.  Now, let's multiply that by the average interest rate on the debt for 2011 (2.859 percent) along with other interest rates ranging up to 7 percent to see just how rapidly things could go very, very wrong.  Here is a graph showing the results:

You must remember one thing.  I am holding the level of the debt constant when, in fact, it is growing by billions every day, making my calculations a best-case scenario.  As well, notice that the 7 percent interest rate seems stratospherically high by today's standards but it is less than one half percent below the rate back in 2000.  Let's put these interest totals into context.  If we look at Washington's final tally for fiscal 2011, the budget deficit was $1.299 trillion for the year.  Receipts from individual income tax reached $1.091 trillion, just above my calculated total interest owing on the debt should the average interest rate on the debt reach 7 percent.  So much for those fantasies of fiscal balance.

Now, let's take the 12 year average interest rate on the entire debt of 4.539 percent and elevate the debt in trillion dollar jumps and see how the interest owing on the debt rises as Washington incurs increasing levels of debt:

With a historically accurate 12 year average interest rate of 4.539 percent, the interest owing on the debt rises by $45.39 billion for each $1 trillion increase in the level of the debt.  By the time Washington's debt reaches $22 trillion, the interest owing on the debt at the above noted level will nearly reach the trillion mark and, as I noted above, would consume all of the 2011 revenue from individual taxes.

I'm not going to go through the entire exercise, but if the debt reaches $20 trillion (a most achievable goal; should Washington continue to accumulate debt at $1.3 trillion annually, the $20 trillion mark will be reached in 3 years and 10 months) and average interest rates on the debt reach a still modest 6 percent, the annual interest on the debt will be $1 trillion.  This is basically what Washington spent on Medicare and Social Security in fiscal 2011.

Some time back, a reader asked me to see if I could provide a method for balancing the budget.  Here is ModeratePoli's attempt to balance Washington's budget, a most interesting effort.  I thought rather than repeating ModeratePoli's exercise, I'd rather take a look at the achievability of fiscal balance from the existing debt side of the equation.  From the calculations that I've completed for this posting, my gut instinct is that Washington will never achieve fiscal balance, largely because the debt is already too large.  We are entering a phase where structural deficits will be a permanent annual fixture; no matter how much the economy grows, spending will always be more than revenue, largely because of one factor - interest owing on the debt.  Right now, Washington is in the fortunate, once-in-a-lifetime situation of having two factors working in its favour; first, a prolonged period of ultra-low interest rates and second, the fact that Treasuries are regarded by the world's bond markets as the investment of last resort.  What is particularly frightening is that these two factors are completely out of their control.  Should the world's bond traders decide that the United States no longer deserves the status of the world's reserve currency, things could get very ugly, very fast.  Just ask Europe.  They know.

Wednesday, November 23, 2011

Working Hard for Canada - Rob Anders Catches a Quick One

For those of you that have always wondered what goes on behind the back of whoever is speaking in Canada's House of Commons, here's a most illuminating video:

For those of you who aren't familiar with Mr. Rob Anders, he's the Conservative MP for Calgary West and has represented that riding since 1997.  Here's a quote about the rather controversial MP from his leader and ours, one Stephen Harper:

"Rob is a true reformer and a true conservative. He has been a faithful supporter of mine and I am grateful for his work."

In 2010, nineteen members of Mr. Anders' riding association resigned because of interference from the Conservative Party over whether the riding association should hold a nomination meeting to turf Mr. Anders.

Now, let's do a blow by blow of the video:

1.) Mr. Anders head nods forward, in the reptilian core of his mind he must realize that he is on camera so he snaps it back upright and removes his glasses as if that will solve the problem that a good eight hours of sleep won’t.

2.) His blinking pattern becomes very slow and his head slowly rotates backwards until he awakens momentarily and he snaps it forward and actually appears to be conscious for a moment.

3.) He blinks and then his head slowly drifts down until his chin touches the knot in his tie and he finally reaches that sweet, sweet moment of REM sleep.  I wonder if he’s dreaming about trashing that nasty old Wheat Board?

All of this is ours for a mere $157,731 plus expenses and, ultimately, plus one heck of a nice pension considering his 14 years of "service".  So far he's earned just short of $2 million plus expenses for his time in the House.  Between April 1, 2010 and March 31, 2011 he also incurred additional expenses of $421,192.65, including $63,931 on travel and a rather hefty $17,395.40 mailing out those ten-percenters that Canadians toss into the waste bucket the minute they look through their mail.  Here's a screen capture showing his entitlement package:

To put Mr. Anders expenses into perspective, here's his fellow Conservative MP Ted Menzies spent during the same time period while he had the high profile position of Parliamentary Secretary to Canada's Finance Minister:

Here's a wee tip for our Prime Minister.  If you insist on keeping Mr. Anders around, it might look better if you relegate him to the backbenches where he can power nap off camera.

...and to think that Mr. Harper thinks that Canada most certainly cannot do without another 30 hard-wrking MPs.

Tuesday, November 22, 2011

Life in Metropolitan America: Is it Improving?

Updated February 3rd, 2012

During the third quarter of 2011, the Brookings Institute released its most recent MetroMonitor which tracks the recession and recovery in the 100 largest metropolitan areas in the United States.  Here are some of the highlights.  Please note that the economic indicators are current to the end of the second quarter of 2011 except where I note otherwise.

The report opens by noting that various economic indicators show that the American economy has stalled.  The national unemployment rate remains at an elevated rate of 8.3 percent, especially when one considers that this is supposed to be the second year of a so-called "recovery".  Here is a graph showing how elevated the unemployment rate is compared to rates over the past 10 years showing just how America's employment situation has not improved meaningfully since early 2009:

House prices, construction and sales remain very weak and wages are lower than they were last year at this time.  All of this does not particularly bode well for Americans, particularly as it certainly appears that another recession is just around the corner.  Now, let's go back to the findings of the MetroMonitor and focus on how the economic recovery is impacting life in metropolitan regions of the United States.

Here is a chart showing which 20 metropolitan areas are performing well and which 20 are performing poorly:

Here is a map showing the strongest 20 metropolitan areas in dark blue dots and the weakest in dark orange dots ranked on a combination of four factors including changes in the unemployment rate from June 2008 to June 2011, percentage change in gross metropolitan product, percentage change in the housing index and the percentage change in jobs (the last three factors are measured by comparing data from June 2011 to the peak quarter):

Notice the concentration of orange dots in the sunbelt areas (generally) and the concentration of dark blue dots in the northeast states, the Great Lakes area (excluding the automotive manufacturing centres) and the Texas/Oklahoma oil producing regions. 

You will notice that most of the metropolitan areas that suffered the least since 2008 have economies that rely on either government (i.e. Washington, D.C. and other state capitals), education (i.e. Boston) or the energy industry (i.e. Dallas, Houston, Oklahoma City).  I guess that high oil prices really did benefit some parts of America!  The metropolitan areas that continue to suffer the most are those related to automobile manufacturing (i.e. Detroit) or those that suffered a large magnitude housing market bust (i.e. Las Vegas, Phoenix, and most of California and Florida).  Most of the strongest performing metropolitan areas saw an increase in government employment, the exact opposite scenario to what was experienced in the weakest metropolitan areas which saw a loss of government jobs.

Now let's look at how well the nation's metropolitan areas are recovering.  Here is a chart showing the strongest 20 recovering metropolitan areas and the weakest 20 recovering metropolitan areas:

Here is a map showing the same data:

The strongest recovery is clearly noted in Texas and its neighbouring oil-rich states.  As well, the states around the Great Lakes are recovering well with the recent increases in the production of both automobiles and durable goods.  That said, the economic performance of many of these manufacturing centres is still well below what it was prior to the Great Contraction.  The recent resurgence in the technology sector has been kind to metropolitan areas including Boston, Worcester, Portland, Rochester, Hartford and San Jose.

The weakest recovery is noted in areas where real estate was hardest hit, most particularly, the parts of America that get the warmest temperatures and the most sun.  It was these areas that experienced a massive upward and equally massive downward swing in housing prices.

Now let's take a more detailed look at the unemployment statistics for America's metropolitan areas.  The Bureau of Labor Statistics breaks down the United States into 372 metropolitan areas.  The unemployment data for December 2011 shows that 235 metropolitan areas have unemployment rates that are lower than the national average of 8.5 percent and 137 metropolitan areas that have unemployment rates that are higher than the national average.  In fact, there are 66 metropolitan areas (or 18 percent of the total) that have U3 unemployment rates that are in excess of 10 percent as shown here

Of the 49 metropolitan areas with a population of 1 million or more, Las Vegas has the highest unemployment rate of 12.7 percent.  The good news is that the September 2010 unemployment rate in Las Vegas was a breath-taking 15.6 percent so, perhaps there is a glimmer of hope.

To put all of this data into perspective, employment has rebounded from its Great Recession low point in 92 of the 100 largest metropolitan areas by the second quarter of 2011, however, only 16 gained back more than half of the jobs that they lost between their pre-recessionary peak and their post-recessionary low point and only four (El Paso, McAllen, Austin and San Antonio) made a complete recovery by the second quarter of 2011.  Unfortunately, eight metropolitan areas had not recovered any of the jobs that they had lost since their employment peak; Augusta, Colorado Springs, Des Moines, Kansas City, Lakeland, Palm Bay, Richmond and Riverside are the unfortunate communities where employment still lags.

Lastly, let's take a brief look at housing prices in America's major metropolitan areas.  Here's a screen capture showing the changes in the Federal Housing Finance Agency's House Price Indices for the top 50 metropolitan areas in the United States for the third quarter of 2011:

Notice that only 18 out of all 308 metropolitan areas have year-over-year house price increases, most of them well less than 1 percent.

Now here are the bottom 50 metropolitan areas with the largest year-over-year price decreases (middle column of data):

Notice that many of the sunnier climes are still suffering from year-over-year house price decreases in excess of 10 percent and most recent quarterly price declines in excess of 7 percent.  This shows us that the real estate market is far from turning around, likely due to a hefty oversupply of foreclosures.  Over a five year period, there are 10 metropolitan areas with price decreases in excess of 50 percent, mainly in Florida, California and Nevada where the city has seen a 5 year price decline of 59.46 percent.

When you assimilate all of this data, it becomes quite clear that, unfortunately, for those who live in Metropolitan America, the Great Recession is far from over.  Housing and employment show no signs of returning to their pre-recessionary levels despite massive intervention by the Federal Reserve and massive stimulus by the Obama Administration.  The trillions spent have gone somewhere but they certainly have not benefited those who live on the tree-shaded streets of Metropolitan America.  

Monday, November 21, 2011

The Budget Control Act: A Primer

Now that it looks like the Congressional Debt/Deficit/Boondoggle Super Committee is not about to meet its obligations, it is entirely possible that the Budget Control Act of 2011 will kick in.  This bill was enacted on August 2, 2011 in a last ditch effort to conclude August 2011's debt ceiling crisis that was brought about by the intransigence (read childishness) of those elected to represent America in Washington.  The basic purpose of the bill is to ensure that Congress cuts spending by more than they increase the debt limit with no new taxes and with no blank cheque for the President.

Here are some of the high points of the bill, a copy of which is located here in case you are suffering from insomnia:

1.) As we all know, the Joint Select Committee on Deficit Reduction (the so-called Super Committee) must produce debt reduction legislation by November 23, 2011 that would be immune from both amendments (which have already taken place on the bill itself) and filibusters.  The legislation that was to be proposed aimed to cut at least $1.5 trillion over the next 10 years and be passed into law by December 23rd, 2011.

2.) If Congress fails to cut at least $1.2 trillion, it can grant a $1.2 trillion increase in the debt ceiling, however, this will trigger cuts in spending split equally between security and non-security programs.  These cuts would be in an amount equal to the $1.2 trillion less the deficit reductions agreed upon by the Committee.

3.) Congress is to establish a Committee that is charged with reducing the deficit by $1.8 trillion over the 2012 to 2021 period.  I'd suggest that if they are having this much trouble cutting $1.2 trillion, they are NEVER going to cut $1.8 trillion!

3.) Caps on discretionary spending would be established for the period through to 2021.

4.) Procedures would be established that would allow Congress to change the Constitution by adding a balanced budget amendment.

It's really key to note that the bill will not actually reduce the debt, rather, it is hoped that it will slow the rate of debt accrual by reducing the deficit, a rather dodgy proposal at best.  Is it just me or has anyone else noticed that, unlike Mainstreet America and its consumer debt, no one in government ever talks about actually paying back any part of the debt?

It's interesting to see just how petty the whole process has been as reflected in the bill.  Elimination of the subsidized loan program for graduate students by eliminating the interest subsidy on loans would save a massive $8.2 billion between 2012 and 2016 and a total of $18.1 billion between 2012 and 2021.  Hardly a significant saving in light of trillion dollar plus deficits but I guess Congress had to start somewhere and who better to punish than a bunch of graduate students.

The Congressional Budget Office estimates that the bill will result in a $22 billion cut in the 2012 deficit (a very insignificant 1.8 percent of 2011's deficit) and by $915 billion between 2012 and 2021.  Cuts in discretionary spending (spending that is set annually by Congress, for example Armed Forces, FBI, infrastructure etcetera) will total $740 billion and mandatory spending (i.e. Social Security, Medicare, Medicaid, federal retirement programs etcetera) will be reduced by $20 billion.  Most interestingly, reduced interest on the public debt will save the taxpayer $155 billion over the 10 year period, hardly a significant saving when interest on the debt for the past 10 years totalled $3.862 trillion.   If these targets are met, the bill will allow the President of the Day to increase the debt by up to $900 billion.  Basically, it's a case of robbing Peter to pay Paul.  When all adjustments are considered, the CBO estimates that the Budget Control Act will reduce budget deficits by about $1.1 trillion between 2012 and 2021.  To put these numbers into context, the deficit for the past 3 fiscal years alone is just over $4 trillion so you can see that an average deficit reduction of roughly $100 billion annually is laughably and absurdly small.

Americans had better hope that no new wars erupt, that there are no recessions in the next 10 years that give corporations an opportunity to slash the government's corporate tax revenues, that interest rates on the accrued federal debt remain at generational lows and that Americans simply stop reaching the age where they want to collect Social Security.  It's the only way this thing is going to work.  Unfortunately, I rather doubt that any of the aforementioned four scenarios will take place.

Freedom in Egypt - What are the Prospects for Meaningful Change?

Updated March 2015

Freedom House, an American think-tank that evaluates freedom around the globe, released an evaluation of freedom in the Arab Spring nations in their Countries at the Crossroads study entitled "After the Arab Spring: The Uphill Struggle for Democracy" by Christopher Walker and Vanessa Tucker.  In the main Countries at the Crossroads study, Freedom House evaluates the performance of 35 countries including a handful of countries in the Middle East and North Africa (MENA), most particularly in light of this year's uprisings in Libya, Tunisia, Syria, Egypt and Yemen.  These uprisings have proven that authoritarian systems are not immune from change, however, recent events in Egypt show that even with uprisings, meaningful change may be very slow to come in the Middle East.  For the purposes of this posting and in light of the recent activity in Syria, Tunisia, Egypt and Libya, I will focus on the MENA portion of the study.

Let's open with look at the scores for all 35 nations in the study to give us a frame of reference to work with:

Each of the four facets of freedom are scored out of seven (i.e. seven is a perfect score for each facet and 28 is a perfect overall score).  Of the 35 nations in the entire study, Eritrea is the least free followed by Libya and Syria.  Not surprisingly, China is not far behind, coming in with the sixth lowest overall score followed by Egypt with the seventh lowest score.  Greece and Italy come in first and second among the entire set of nations in the study.

Let's now take a more detailed look at the overall scores for the six MENA nations keeping in mind that each of the four categories (accountability and public voice, civil liberties, rule of law and anti-corruption and transparency) is scored out of seven for a total score out of 28:

None of the six nations are even close to a perfect score with Libya coming in last with a score of 4 out of 28, Syria second last at 6 out of 28 and Egypt third last at 8 out of 28.  As I noted above, out of the 35 nations in the study, Libya comes in second last and Syria comes in third last.  Both Egypt and Libya have ousted their respective leaders leaving the countries open to meaningful change, however, they are also open to replacing their former dictators with either religious or military governments that could well be just as repressive.  Obviously, removal of a dictator is just the first step in the end of authoritarianism as protestors in Tahrir Square are finding out.  In the cases of both Libya and Syria, it appears that the countries are (or have) suffered from sectarian civil war which has (or will) divide both countries further along tribal and cultural lines.  As well, the complete lack of a political system that is independent of a long-term dictator has left both countries very vulnerable because of the complete implosion of the previous political system.

Now let's take a detailed look the nation of Egypt, its performance in accountability and public voice, its civil liberties, its rule of law and its anticorruption and transparency.  This will be followed by steps that could be taken to improve Egypt's democracy.  Let's open by looking at the detailed analysis of each facet of freedom in Egypt as assessed by Freedom House:

Egypt has been in the news a great deal over the very recent past.  This year's implosion of the ruling National Democratic Party came as a surprise to both Egyptians (including President Mubarak!) and outsiders alike.  Deterioration in the country had increased in recent years with increasing labour unrest; this was capped by public objections to rigged elections and the possibility of hereditary dictatorship (Mubarak's son Gamal Mubarak) once Mubarak left office.  The death of Khalid Said while in custody was a major contributing factor to the genesis of the uprising.  As well, economic reforms were clearly rigged to benefit regime insiders contrasting sharply with the extremely high unemployment among Egypt's youth.  The use of force to quell public disturbances and other political unrest had increased in recent years; both the General Intelligence Service and State Security Investigative Service employed an estimated 1.5 million people by 2010 to control Egypt's population.  In fact, the country spent more on internal security than it spent on housing or health.

First, let's take a brief look at accountability and public voice.  While Egypt held both national and local elections during Mubarak's 30 year reign, they were generally so rigged that voters declined to vote resulting in very low voter turnout with only 27.5 percent (some reports say that turnout was as low as 5 percent) of 41 million eligible voters turning out to vote in the 2010 elections, among the most fraudulent elections in Egypt's recent history.  Those who did vote were often compelled to do so by the state; the country's poor were often drawn to vote by getting paid to do so or by threat that their state financial assistance would be removed.  Opposition voters and candidates were often intimidated by gangs of hired thugs with the result that, in 2010, the official NDP candidates and their allies took 478 of 508 seats.  The election of 2005 was an exception; in that election, the Muslim Brotherhood won 88 of the 444 seat People's Assembly, however, in the 2010 election, it failed to win a single seat.  Some commentators state that the 2010 elections were engineered so that the NDP could win a monopoly through the use of fraud and rigged balloting.  In order to control the political system, thousands of Egyptians were imprisoned with the number of political prisoners held without charge for over a year growing to more than 20,000 and the number of prisons growing fourfold during Mubarak's tenure.

Now let's take a look at civil liberties in Egypt.  The use of torture and rape to intimidate Egyptians held in custody is widely reported.  The El Nadim Center for Psychological Management reports that systemic torture in Egypt has led to the death of victims.  The close association of the President and the country's security forces is well known.  Egypt is fortunate because it has a relatively homogenous population both ethnically and in its religious composition, unlike both Syria and Libya.  That said, the recent conflict that resulted in the deaths of Christians shows that sectarian trouble could be brewing just below the surface.  Coptic Christians, who make up roughly 10 percent of the population, have suffered from increasing levels of violence in recent years with clashes leading to the death of eight Copts in January 2010.  Discrimination against Copts is not systematic in Egypt, however, there is a double standard that leaves the Christian minority vulnerable to violence.  In the final years of Mubarak's rule, 53 incidents of conflict occurred between the Muslim majority and the Christian minority.

Now let's examine Egypt's rule of law.  Egypt's lawyers and judges are among the most highly trained jurists in the Arab world.  President Mubarak has generally left the judiciary independent, however, he attempted to expand his control over judicial appointments.  The repeated imposition of emergency rule, however, resulted in Egypt's security courts controlling the trials of citizens who were afforded few legal protections. Certain laws allowed the trial of civilians in special courts for alleged terrorist activity along with the use of military tribunals. The independence of Egypt's judiciary is regarded by many Egyptians as a lead-in to the move toward true democracy.

Finally, let's take a look at anti-corruption and transparency in Egypt.  Egypt suffers from high levels of graft with corruption pervading daily life.  This corruption takes the form of both bribery and the use of exploitation of personal connections to facilitate government transactions.  Many Egyptians regard corruption as part of the misery that they face on a daily basis including the increase in commodity and food prices as well as low wages.  As well, a study shows that 42 percent of small businesses made illegal payments to remain in operation.  A study by Cairo University found that corruption cost Egypt $11 billion annually through graft in education, tax collection and the steel and cement monopolies.  Transparency International ranked Egypt 98th out of 178 countries in its 2010 Corruption Perceptions Index, scoring a 3.1 out of 10.  A major part of the problem with corruption was a lack of prosecutions since such prosecutions would have interfered with the economic interests of the ruling elite.

What does Freedom House recommend that Egypt's new SCAF leadership and its future democratically elected government do to improve liberties for Egyptians?  First, a system that ensures that fair elections will be held needs to be implemented accompanied by independent supervision of November's electoral process.  Laws, including a March 2011 law passed by the SCAF that threatens protestors with jail and fines up to $90,000, need to be changed.  Those that incite violence against religious minorities (Copts in particular) need to be held accountable in the country's formal legal system.  Egypt's security system needs to be held accountable for their actions within the country's independent legal system and the use of military tribunals to try civilians should end immediately.  As well, the new government needs to fully implement its anti-corruption legal reforms and prosecute offenders.

I'd say that Egypt's new leadership has its work cut out for it.  It will be interesting to see if freedom improves after the November elections but my suspicion is that the process of change will be a hard fought and not easily won battle considering how entrenched the current system is.