March 2008
The ragged paper ration cards used by 40 million Egyptians to purchase subsidized basic food products are being phased out in favor of plastic smart cards designed to control the leakage of subsidized goods to the black market.
The primary goal of the new card, which contains an embedded chip with data about the cardholder's family's monthly quota of subsidized goods, is to improve the distribution of subsidized commodities and ensure that they are reaching those who need them most, explains Noha Kaptan, information infrastructure adviser to the minister of social solidarity. "The new [program] aims to close the loopholes in the existing system without abandoning the principle of supporting [limited-income] citizens."
The old ration card system depended heavily on the commitment of shopkeepers to keep accurate ledgers. To receive their monthly allotment of subsidized goods, citizens were required to purchase their goods at designated groceries, where their names and quotas were kept on a ledger. The individual would sign for goods received on the ledger, while the shopkeeper would sign on the recipient's ration card.
The ledger system created opportunities for abuse. One common scenario was for grocery clerks to sell unclaimed subsidized goods on the black market at the end of the month. If a citizen came late to purchase their quota, the shopkeeper would claim that the unclaimed goods had been returned to the local supply office. It would be difficult for the citizen to prove otherwise.
The main problem with old system, explains Kaptan, is that it was impossible to know what was left in stock at the grocery, and whether goods had actually been distributed to the citizens according to their quotas, or sold by the groceries on the black market. The new cards identify which citizen purchased the goods, and record the time and location of the transaction, enabling officials to better track the distribution of subsidized commodities. "We found out that we save about 20 percent from the stock given to the groceries when applying the smart card system. This [is the amount that] used to leak from the old system of ration cards due to the lack of the means to control it."
In 2006, the government commissioned a consortium of IT firms to conduct a four-month pilot project in Suez to test the new food-subsidy smart cards and gauge the public's response. Citizens who filled in applications and provided information including the number of members in their family, average family income and designated grocery store, received the new ration cards. In all, some 83,000 subsidy smart cards were issued.
The Suez project allowed officials at the Ministry of Social Solidarity to better understand the consumption patterns of limited-income citizens. "We found out that there is a demand on certain [subsidized] goods... more than others," says Kaptan. "So we canceled the goods that were not in high demand, such as pasta and lentils, and we used the money that was allocated for those low-demand goods to give the people additional quantities of the goods that they demanded most, [which are] rice, sugar, cooking oil and tea."
Satisfied with the results, the government has begun expanding the project's scope to other areas of the country. A private consortium commissioned to handle the technical aspects of the project has begun issuing subsidy smart cards to applicants in Port Said, Beni Suef, Sharqiya, Menoufiya and Sohag governorates, the City of Luxor, and in Cairo's Maadi district. Officials hope to provide 11.5 million subsidy smart cards to cover approximately 40 million limited-income beneficiaries nationwide by the end of the year.
The government's plan is not simply to roll out a more efficient ration card, but rather to facilitate the disbursement of subsidies and government services, explains Magdy El Henawy, e-government project manager at the Ministry of State for Administrative Development (MSAD). "The smart cards are not just subsidy cards. They are a part of a whole system that the government is attempting to implement, which is the family card project," he says. The project will utilize the digital storage capacity of the smart card to store personal data that can be used by the cardholder and their family to obtain basic government services such as healthcare, education and pensions.
When the citizen uses their subsidy smart card to purchase goods [see sidebar], the quantity purchased is deducted from their quota and the transaction is recorded on both the citizen's card and the shopkeeper's merchant card. "This facilitates efficient tracking of the stock used," says Kaptan. "It enables us to know [who took what and when]." At the end of the month, the grocery owner visits a designated supply office to validate the previous month's transactions and update the quotas on their merchant card. Once validated, a receipt is provided that can be used to obtain new stock from government-affiliated distribution companies.
According to grocery store manager Ghareeb Hassan Allah, a member of the local committee responsible for implementing the subsidy smart card program in Suez, tighter tracking control discourages shopkeepers from manipulating the system. It also makes stocking more efficient. "Groceries no longer have to buy all their stock at once at the beginning of each month. Now the shopkeeper only needs to add to the stock he has from the preceding month. Under the less controlled old system, [the grocery owner] had to buy all his monthly stock at the beginning of each month regardless of what stock he had from previous months."
While the new system makes the distribution of subsidized commodities more efficient, some subsidy program recipients argue that it will do little to stem the flow of goods to the black market. "I do not see it as a very controlled system," says Yousef Mowafi, a retired civil servant. "Any citizen can give his card and PIN code to the grocery clerk and tell him which goods and which quantities to take from his quota. [The clerk] can then sell these goods in the market just like before and share the profit with the citizen."
Not all loopholes have been filled, El Henawy concedes. "The new system can hardly control the conspiracy that could take place between citizens and groceries," he says. One reason for his state of resignation is a 2006 MSAD study that found that shopkeepers receive just 1.5 percent profit from the sale of subsidized goods. The low margin underlined the enormous gains to be made by grocers abusing the system.
The study's findings prompted the government to come up with an incentive aimed at dampening the appeal of the black market. According to El Henawy, the government is offering groceries one pound for every smart card that passes through their point-of-sale machine. If, for instance, 500 citizens purchase their quota of subsidized goods at a grocery in a month, the grocery owner will receive LE 500 cash from the government.
The new subsidy smart cards system is being implemented under a public-private partnership (PPP) between the government and a consortium of private companies handling the project's technical application. Kaptan points out that the PPP costs the government nothing. "We had a bid and it was specified in the request for proposals that the company that wins the bid for this project would bear the cost of building all the infrastructure for the project including but not limited to call centers, the hardware required for the points of sale, the network necessary to connect the groceries to the supply offices and so on," she says.
In return, the private partner makes a profit from each smart card transaction. Every time a citizen puts their subsidy smart card in a point-of-sale machine, the government credits the firm approximately LE 2 for the transaction. Kaptan is visibly pleased with the arrangement. "We built a system with no initial investment where we pay LE 2 per transaction, control the quantities given out to consumers, combat the black market business that was run by the groceries, and have a database of all the beneficiaries," she says. "It's a great development that is enabling us to improve the service we provide to citizens."
The ragged paper ration cards used by 40 million Egyptians to purchase subsidized basic food products are being phased out in favor of plastic smart cards designed to control the leakage of subsidized goods to the black market.
The primary goal of the new card, which contains an embedded chip with data about the cardholder's family's monthly quota of subsidized goods, is to improve the distribution of subsidized commodities and ensure that they are reaching those who need them most, explains Noha Kaptan, information infrastructure adviser to the minister of social solidarity. "The new [program] aims to close the loopholes in the existing system without abandoning the principle of supporting [limited-income] citizens."
The old ration card system depended heavily on the commitment of shopkeepers to keep accurate ledgers. To receive their monthly allotment of subsidized goods, citizens were required to purchase their goods at designated groceries, where their names and quotas were kept on a ledger. The individual would sign for goods received on the ledger, while the shopkeeper would sign on the recipient's ration card.
The ledger system created opportunities for abuse. One common scenario was for grocery clerks to sell unclaimed subsidized goods on the black market at the end of the month. If a citizen came late to purchase their quota, the shopkeeper would claim that the unclaimed goods had been returned to the local supply office. It would be difficult for the citizen to prove otherwise.
The main problem with old system, explains Kaptan, is that it was impossible to know what was left in stock at the grocery, and whether goods had actually been distributed to the citizens according to their quotas, or sold by the groceries on the black market. The new cards identify which citizen purchased the goods, and record the time and location of the transaction, enabling officials to better track the distribution of subsidized commodities. "We found out that we save about 20 percent from the stock given to the groceries when applying the smart card system. This [is the amount that] used to leak from the old system of ration cards due to the lack of the means to control it."
In 2006, the government commissioned a consortium of IT firms to conduct a four-month pilot project in Suez to test the new food-subsidy smart cards and gauge the public's response. Citizens who filled in applications and provided information including the number of members in their family, average family income and designated grocery store, received the new ration cards. In all, some 83,000 subsidy smart cards were issued.
The Suez project allowed officials at the Ministry of Social Solidarity to better understand the consumption patterns of limited-income citizens. "We found out that there is a demand on certain [subsidized] goods... more than others," says Kaptan. "So we canceled the goods that were not in high demand, such as pasta and lentils, and we used the money that was allocated for those low-demand goods to give the people additional quantities of the goods that they demanded most, [which are] rice, sugar, cooking oil and tea."
Satisfied with the results, the government has begun expanding the project's scope to other areas of the country. A private consortium commissioned to handle the technical aspects of the project has begun issuing subsidy smart cards to applicants in Port Said, Beni Suef, Sharqiya, Menoufiya and Sohag governorates, the City of Luxor, and in Cairo's Maadi district. Officials hope to provide 11.5 million subsidy smart cards to cover approximately 40 million limited-income beneficiaries nationwide by the end of the year.
The government's plan is not simply to roll out a more efficient ration card, but rather to facilitate the disbursement of subsidies and government services, explains Magdy El Henawy, e-government project manager at the Ministry of State for Administrative Development (MSAD). "The smart cards are not just subsidy cards. They are a part of a whole system that the government is attempting to implement, which is the family card project," he says. The project will utilize the digital storage capacity of the smart card to store personal data that can be used by the cardholder and their family to obtain basic government services such as healthcare, education and pensions.
When the citizen uses their subsidy smart card to purchase goods [see sidebar], the quantity purchased is deducted from their quota and the transaction is recorded on both the citizen's card and the shopkeeper's merchant card. "This facilitates efficient tracking of the stock used," says Kaptan. "It enables us to know [who took what and when]." At the end of the month, the grocery owner visits a designated supply office to validate the previous month's transactions and update the quotas on their merchant card. Once validated, a receipt is provided that can be used to obtain new stock from government-affiliated distribution companies.
According to grocery store manager Ghareeb Hassan Allah, a member of the local committee responsible for implementing the subsidy smart card program in Suez, tighter tracking control discourages shopkeepers from manipulating the system. It also makes stocking more efficient. "Groceries no longer have to buy all their stock at once at the beginning of each month. Now the shopkeeper only needs to add to the stock he has from the preceding month. Under the less controlled old system, [the grocery owner] had to buy all his monthly stock at the beginning of each month regardless of what stock he had from previous months."
While the new system makes the distribution of subsidized commodities more efficient, some subsidy program recipients argue that it will do little to stem the flow of goods to the black market. "I do not see it as a very controlled system," says Yousef Mowafi, a retired civil servant. "Any citizen can give his card and PIN code to the grocery clerk and tell him which goods and which quantities to take from his quota. [The clerk] can then sell these goods in the market just like before and share the profit with the citizen."
Not all loopholes have been filled, El Henawy concedes. "The new system can hardly control the conspiracy that could take place between citizens and groceries," he says. One reason for his state of resignation is a 2006 MSAD study that found that shopkeepers receive just 1.5 percent profit from the sale of subsidized goods. The low margin underlined the enormous gains to be made by grocers abusing the system.
The study's findings prompted the government to come up with an incentive aimed at dampening the appeal of the black market. According to El Henawy, the government is offering groceries one pound for every smart card that passes through their point-of-sale machine. If, for instance, 500 citizens purchase their quota of subsidized goods at a grocery in a month, the grocery owner will receive LE 500 cash from the government.
The new subsidy smart cards system is being implemented under a public-private partnership (PPP) between the government and a consortium of private companies handling the project's technical application. Kaptan points out that the PPP costs the government nothing. "We had a bid and it was specified in the request for proposals that the company that wins the bid for this project would bear the cost of building all the infrastructure for the project including but not limited to call centers, the hardware required for the points of sale, the network necessary to connect the groceries to the supply offices and so on," she says.
In return, the private partner makes a profit from each smart card transaction. Every time a citizen puts their subsidy smart card in a point-of-sale machine, the government credits the firm approximately LE 2 for the transaction. Kaptan is visibly pleased with the arrangement. "We built a system with no initial investment where we pay LE 2 per transaction, control the quantities given out to consumers, combat the black market business that was run by the groceries, and have a database of all the beneficiaries," she says. "It's a great development that is enabling us to improve the service we provide to citizens."
Point of sale
Under the new ration card system, each designated point of sale receives a special card reader and a merchant card that is updated each month with the quotas of the individual cardholders assigned to that outlet. The merchant card remains in the card reader. When purchasing subsidized goods, the citizen inserts their subsidy smart card into the reader and enters their unique PIN. Buttons on the card reader represent the four products - rice, tea, sugar and cooking oil. The citizen presses the corresponding button to select the foodstuff and quantity they wish to purchase, then another button to complete the transaction.
The purchased quantity is deducted from the cardholder's monthly quota. If any quantity of this quota remains, the cardholder has until the end of the month to use it.
By Deena Omar
© Business Monthly 2008
