August 25, 2016 / 1:06 PM / a year ago

Egypt's wheat corruption scandal takes down embattled supply minister

Egypt's Minister of Supply Khaled Hanafi attends the Egypt Economic Development Conference (EEDC) in Sharm el-Sheikh, in the South Sinai governorate, south of Cairo, Egypt March 14, 2015.Amr Abdallah Dalsh

CAIRO/ABU DHABI (Reuters) - Egypt's Minister of Supply Khaled Hanafi has resigned amid the highest-profile corruption case since President Abdel Fattah al-Sisi came to power in 2014.

Hanafi's resignation is the most senior-level fallout from a probe into whether millions of dollars intended to subsidize farmers were used to purchase wheat that did not exist.

"Experience has proven that being in a position of authority is no longer a picnic," Hanafi said as he announced his resignation on state television.

Egypt, the world's largest importer of wheat, has been mired in controversy over whether much of the roughly 5 million tonnes of grain the government said it procured in this year's harvest exists only on paper, the result of local suppliers falsifying receipts to boost government payments.

If Egypt's local wheat procurement figures were misrepresented, it may have to spend more on foreign wheat purchases to meet local demand - even as it faces a dollar shortage that has sapped its ability to import.

"It's important that whoever comes next knows that the minister is not above accountability and will always be monitored and under the spotlight," Nader Noureldin, a former supply ministry advisor, said.

A government source told Reuters that the Minister of Trade and Industry Tarek Kabil will conduct the affairs of the Supplies Ministry until a new minister is appointed.

Egypt's supply ministry is in charge of a massive food subsidy program and the main state grain buyer, the General Authority for Supply Commodities (GASC).

Parliamentarians who formed a fact-finding commission to investigate the fraud have said upwards of 2 million tonnes, or 40 percent of the locally procured crop, may be missing.

The general prosecutor has ordered arrests, travel bans, and asset freezes for several private silo owners and others allegedly involved in the scandal.

Egypt's Minister of Supply Khaled Hanafi attends the Egypt Economic Development Conference (EEDC) in Sharm el-Sheikh, in the South Sinai governorate, south of Cairo, Egypt March 14, 2015.Amr Abdallah Dalsh

While Hanafi has not been accused of directly profiting from misallocated subsidies, parliamentarians, industry officials, and media commentators have in recent weeks pinned blame for the crisis squarely on his shoulders.

"Hanafi started very strong but unfortunately he trusted the wrong people who ran the ministry for their own benefit which led to huge loss of the subsidy," said Waleed Diab, Managing Director of Egyptian Millers Company, one of the country's largest private mills.

The prospect of hundreds of millions of dollars in squandered government subsidies comes as Egypt gears up for a raft of austerity measures, including various subsidy cuts agreed to as part of a $12 billion IMF program that could bring pain for its poorest people.

Egyptian Minister of Supply Khaled Hanafi attends the Egypt Economic Development Conference (EEDC) in Sharm el-Sheikh, in the South Sinai governorate, south of Cairo, Egypt March 14, 2015.Amr Abdallah Dalsh

TEFLON MINISTER

Pressure has been mounting on the minister, who was appointed in 2014, ever since earlier this year when parliament began investigating whether a bumper wheat crop -- nearly 5 million tonnes delivered by farmers versus 3-3.5 million normally procured -- may be the result of foul play.

In recent weeks parliament's wheat commission has captured the attention of the Egyptian public, with MPs making highly publicized site visits to private silos suspected of fraud, arriving unannounced to tally missing wheat before reporting their findings to the local press.

Critics have also accused Hanafi of bungling an array of the ministry's most critical duties.

From smart cards for bread distribution that were hacked, wasting millions of dollars in subsidized flour, to the ministry's failure to purchase rice last harvest -- an oversight that led to nationwide shortages of subsidized rice and price spikes that hit the country's poorest -- Hanafi has drawn a broad coalition of critics.

Criticism took an unexpected turn last week, when fiery media personality and MP Mostafa Bakry accused Hanafi on television of using 7 million Egyptian pounds ($788,300) in state funds to maintain a residency at a posh downtown Cairo hotel.

The minister later said in a statement he had paid for the long-term hotel residence with his own personal funds.

Reporting by Eric Knecht and Maha El Dahan; additional reporting by Asma Alsharif; editing by William Hardy and David Evans

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