BARRIERS TO ECONOMIC RECOVERY IN EGYPT / GEOPOLITICAL FUTURES

Barriers to Economic Recovery in Egypt

The economy has taken a back seat to the president’s preoccupation with his own survival.

By: Hilal Khashan

Since 1952, when a group of army officers toppled the monarchy, governments in Egypt have been preoccupied with their own security and survival. 

The administration of President Abdel Fattah el-Sissi is no exception. 

After seizing power in 2013, he pledged to improve the quality of life of the Egyptian people, turn the political system over to civilian control and not run for president. 

He soon reneged on his promises and launched massive economic development projects that benefited the military establishment rather than the working class. 

The country is now struggling under a deep economic crisis with little prospect for lasting recovery.

Misguided Projects

The development projects initiated by el-Sissi have been aimed more at securing the survival of the government and less at improving the health of the economy. 

In 2015, el-Sissi ordered the construction of a new administrative capital at a cost of $58 billion. 

The city will house Egypt’s entire political infrastructure, insulating it from the Egyptian public and any possible social disruptions. 

It’s a political project that rivals Egypt’s other major development scheme, construction of the new Suez Canal, which opened in 2015 and cost $8 billion to develop. 

The project was supposed to triple the revenues of the strategic waterway to $13 billion annually. 

But it’s expected to bring in just $8 billion this year, merely a 40 percent increase from 2020, when COVID-19 restrictions stifled global maritime traffic.

The new center, located just outside of Cairo, should accommodate up to six million people. 

It’s essentially an attempt by the government to shift the center of political and economic power away from Cairo and its revolutionary bent. 

Most Egyptians can’t afford to move to the new capital, meaning it will mostly accommodate the well-off of Egyptian society – i.e., those less inclined to engage in violent protests and who form the base of support for the government.

The government has also introduced other changes to the landscape of Cairo that should allow the rapid deployment of military and paramilitary forces in the city in the event of widespread social unrest. 

The changes include large investments in transportation infrastructure and the construction of roads and bridges – which led to the partial destruction of historical architectural monuments in the city. 

The plan is to use the new bridges – 40 in total, built east of the new capital – to accelerate the movement of the armed forces.

The broader strategy is to more quickly and effectively contain large-scale uprisings in cities through urban restructuring. 

The government fears a repeat of the events that led to the mass uprising in 2011, when several police stations across Cairo, particularly in slums and low-income areas, were attacked and looted. 

The government initially wanted to change the demographic composition of the vital regions close to government centers by transferring the population to other places, essentially establishing a buffer zone for the country’s political institutions. 

It was an unrealistic goal to begin with, but the government has managed to systematically transform the transportation infrastructure to allow the armed forces to move more quickly around Cairo, reducing the chances that they’ll become overwhelmed, as they were in 2011.

Power of Manipulation

El-Sissi has repeatedly misled the Egyptian people about his political aspirations. 

After leading the 2013 coup that overthrew democratically elected President Mohamed Morsi, el-Sissi, who was an army chief at the time, said he would not run for the presidency. 

He didn’t want to give the impression that he acted out of his own personal interests in ousting the former president. 

One army officer insisted that el-Sissi had repeatedly confirmed to him that he would not run and preferred to dedicate his efforts to the development and modernization of the armed forces. 

However, it seemed that the groundwork had already been laid for a run. 

A senior officer close to el-Sissi said he was the most deserving person for the position and stressed that el-Sissi’s overwhelming popularity made him an ideal candidate. 

El-Sissi discreetly instructed his aides to mobilize Egyptian public opinion to support his nomination. 

After finally announcing his candidacy, he received 96 percent of the vote, while his veteran civilian competitor received just 3 percent.

Before running for a second term in 2018, el-Sissi said he would not seek a third term in 2022, stressing that he would respect the constitutional limit of two four-year terms. 

But amendments rubber-stamped by the Egyptian parliament last year extended el-Sissi’s current term in office by two years. 

He’s now entitled to run for a final six-year mandate in 2024.

El-Sissi has also misled the public about the country’s current crisis. 

He often invokes conspiracy theories as a reason for the declining security and economic situation. 

He has blamed the country’s economic deterioration on the 2011 uprising that, according to his estimates, cost Egypt about $477 billion. 

He has also expressed fears that a similar uprising, possibly aided by the United States, could lead to the Egyptian state’s collapse. 

Though he’s acknowledged that Egypt is experiencing a real crisis, he believes that its recovery hinges on the people’s willingness to take responsibility and cooperate with the government.

Rising Debt

The basis of this crisis is a leadership composed of military officials who don’t know how to manage the economy or help people meet their basic needs. 

Concerning the lack of meat products on the market, for example, government nutrition experts recently advised citizens to eat chicken feet, claiming that they are high in protein, even though they were, until recently, considered pet food.

The economy is fragile, and the only way the government has dealt with the crisis is by borrowing excessively or imposing more taxes on Egyptians already struggling to make ends meet. 

Under el-Sissi, Egypt’s foreign debt grew from 15 percent of gross domestic product in 2013 to more than 90 percent last year. 

This year, the government will spend $16 billion on servicing the debt. 

Projections indicate it will reach $230 billion in 2023 and exceed $260 billion next year. 

This doesn’t include the cost of constructing the Dabaa nuclear power plant, valued at $28.75 billion, and a high-speed train service, costing $23 billion.

Egypt’s revenue earned in foreign currency, including from tourism, the Suez Canal and exports, is at most $24 billion. 

Clearly, that’s not enough to pay off the debt, so the government has resorted to further borrowing in order not to default on its payments. 

Last year, it adopted reforms to secure a loan from the International Monetary Fund, and the central bank announced the flotation of the Egyptian pound, which led to further deteriorating conditions for average Egyptians.

The Egyptian economy, though diverse, is stagnant and lacks competitiveness. 

Insufficient agricultural production and balance of payment deficits are its Achilles’ heel. Since the time of President Gamal Abdel Nasser, the government has failed to tackle problems stemming from negligence and mismanagement of public funds.

The IMF has warned of a challenging year ahead for the global economy, and Egypt may suffer more than most. 

It’s one of many countries facing difficult economic prospects because of the pandemic, the war in Ukraine and the looming global recession. 

In the short term, the newly extended $3 billion loan from the IMF, as well as investments and grants from the Gulf countries, may temporarily stabilize the economy. 

But in the long term, it’s doubtful that the economic reform program will achieve a comprehensive and sustainable recovery. 

The IMF loan won’t cover Egypt’s financing needs, but securing more money would have required adhering to strict reforms, including easing the military’s grip on the economy, which could jeopardize el-Sissi’s grip on power. 

Meanwhile, the economy is flagging, and more than one-third of the country’s 104 million people live on $3 per day.

Military Dominance

El-Sissi rose to power without a national plan. 

He has maintained his authority by appeasing the army and investing in mega projects that had little impact on economic productivity. 

Having spent most of his life in the army, he knows how to maintain a cohesive relationship with the armed forces. 

He also understands that the power of the military increased after he tamed the political opposition, so he’s keen on preventing the army from turning against his government.

The coup in 2013 enabled the security apparatus to recover from its humiliation after the 2011 uprising. 

El-Sissi’s military experience helped him maintain a balance between the presidency and the army, but he has struggled to hold the reins of power. 

He ratified a law to reduce the terms of service for top military officers, including the chief of staff, from four years to two. 

Last year, he announced a plan to promote national reconciliation and appointed a pardon committee, but over the past eight months, the police arrested twice as many activists for defying the president’s directives as they released.

El-Sissi’s alliance with the military overrides all of his other commitments and obligations. 

Since 1952, all presidents have come from the military – with the exception of Mohammad Morsi, who was defeated by the army after one year in office. 

These leaders understood how to manage their relationships with the military but had little sense of how to develop the economy. 

As long as this remains the case, there will be little prospect for political reform or genuine economic development.