Positive Economic Growth in Egypt Belies Mounting Problems

Egypt has received high marks from the International Monetary Fund (IMF) for carrying out a series of difficult economic reforms and for its success as an emerging market. However, such positive trends mask a deeply troubling domestic scene that includes rising poverty, a squeezed middle class, high food prices, persistently rising youth unemployment, and increasing political repression. Moreover, although the government often repeats a pledge to stamp out terrorism, violence by extremist groups in the northern Sinai as well as the Cairo region continues.

Despite sharp criticism from international human rights organizations and liberal activists, the government of President Abdel-Fattah el-Sisi has been buoyed by the support of key global leaders, namely from Russia and some Arab Gulf states—particularly Saudi Arabia and the United Arab Emirates—and US President Donald Trump. This international support and the stifling of dissent at home have enabled the Sisi government to maintain tight control over the Egyptian polity; but it is an approach that is not sustainable over the long term. With the country’s burgeoning population of over 100 million and high debt payments that leave little room to improve social services, the government needs to change its military-based approach. Opening up the political and economic systems would allow for sustained private sector growth and a free flow of ideas—and criticism—that would keep the public sector accountable.

With the country’s burgeoning population of over 100 million and high debt payments that leave little room to improve social services, the government needs to change its military-based approach.

Macroeconomic Trends Are Up…

On paper, Egypt’s economy is doing well. It is nearing the completion of a three-year economic reform program that included $12 billion in loans from the IMF in return for the devaluation of the Egyptian pound, the introduction of a value-added tax, and the cutting of subsidies on energy products and some food items like cooking oil. Such policies have helped the government reduce its large budget deficit which, in fiscal year 2018-2019, is estimated to be about half of what it was in 2017-2018. Moreover, the IMF predicts a GDP growth rate of 5.3 percent in 2019. Some of the success stories include tourism, which generated $11.4 billion in 2018 compared with $7.6 billion in 2017, and the large Zohr gas field located in Egypt’s portion of the Mediterranean Sea, which holds great potential. For many of these reasons, The Economist has referred to Egypt as “the world’s hottest emerging market.”

…But Egyptians Are Suffering

However, there has been little trickle-down effect for average Egyptian families. In fact, their purchasing power has actually declined because the devaluation of the Egyptian pound resulted in higher food costs (Egypt is one of the largest food importers in the world), while the cuts in subsidies have led to a sharp increase in the price of gasoline. Moreover, wage increases have not kept pace with the inflation rate, which reached about 30 percent in 2017 but dropped to 11 percent at the end of 2018. Consequently, the poverty rate has increased, rising from 28 percent in 2015 to 32 percent in 2018 (using, as a baseline, those earning less than $45 a month). Other assessments paint an even bleaker picture: in an April 2019 report, the World Bank estimated that 60 percent of Egyptians are “either poor or vulnerable.”

In addition, although the Egyptian government claims that unemployment has dropped

from 12.6 percent in 2016 to 8.1 percent in the first quarter of 2019, most of the new jobs were in the informal sector, indicating that underemployment is a serious problem. Moreover, at least 700,000 young people enter the job market every year, many of whom with higher education degrees and  great aspirations. Youth unemployment has dropped only slightly, from about 34.7 percent in 2015 to 32.6 percent in 2018. Meanwhile, Egypt’s government has been borrowing heavily from overseas; its overall debt represents 87 percent of GDP, and its debt payments account for at least 38 percent of budgetary spending. This means the government has less funds to spend on education, health care, and other social services that sustain a large and growing population.

At least 700,000 young people enter the job market every year, many of whom with higher education degrees and  great aspirations.

With public sector hiring at a virtual standstill (the days of guaranteeing every university graduate a civil service job have long been over), the private sector has not picked up the slack. This is partly because there is still not a level playing field for businesses in Egypt and also due to the fact that the military has its hands in a number of enterprises—though the extent of the so-called “Military, Inc.” is difficult to quantify. Although the IMF has praised Egypt’s reforms, in one of its latest assessments it warned: “Sustained efforts are needed to advance critical reforms in competition, industrial land allocation, transparency and governance of state-owned enterprises, and public procurement.” In other words, much of the economy as well as economic decision-making is opaque. In addition, beyond the hydrocarbon sector, foreign companies have been reluctant to invest in Egypt given such governmental policies.

The Paranoia about Dissent

Although the Sisi government deserves credit for restoring some international monetary confidence, it has concurrently tightened its grip on the polity where dissent is often portrayed as a crime against the state. Journalists and bloggers who have dared to criticize the regime are either harassed or thrown in prison. Some international NGOs, such as Human Rights Watch, claim that as many as 60,000 people are now political prisoners in Egypt. While a majority of them are members or sympathizers of the Muslim Brotherhood, which was officially banned as a terrorist organization in late 2013, many of the incarcerated are secular liberals and civil society activists whose crime was to criticize the government.

Sisi apparently believes that former President Hosni Mubarak’s biggest mistake was that he tolerated dissent to some degree in the years immediately preceding the 2011 uprising. He is clearly determined not to follow that policy. In April of this year, for example, a member of the liberal Dostour Party was arrested by authorities in the Qalyubia Governorate for pointing out that bribes were given to citizens to come out and vote “yes” on constitutional changes that favored Sisi and the military establishment. In fact, some independent observers noted that many Egyptians were given the equivalent of 150 Egyptian pounds’ worth of food (about $9) for voting for the referendum. One woman told The Guardian that, with the holy month of Ramadan around the corner, she needed the food items for her hard-pressed family.

Sisi apparently believes that former President Hosni Mubarak’s biggest mistake was that he tolerated dissent to some degree in the years immediately preceding the 2011 uprising.

The constitutional changes extend the presidential term in office from four to six years and would allow Sisi to remain as president until 2030. They also give him vast powers over the judiciary and enable the military to intervene in politics if there is a threat to Egypt’s civil state.

While Sisi has permitted military officers to run key businesses even more so than in the past, he is also wary of the potential for a coup or of the popularity of some retired general who could challenge him in an election. During the run-up to the last presidential election in 2018, for example, he ordered the detention of presidential candidate Sami Anan, the army chief of staff under Mubarak, and compelled Ahmed Shafiq, the former head of the air force and Mubarak’s last prime minister, to drop his presidential bid after he returned to Egypt from self-imposed exile in the UAE. Under Sisi’s guidance, parliament in 2018 passed a bill that would give military officers legal immunity for any acts carried out after former President Mohamed Morsi’s ouster in July 2013, but it also allowed Sisi to grant reserve officer status to “senior army officers” after they retire from active duty. The latter clause was put in place for political reasons because a reserve officer, like one on active duty, is banned from running for public office.

Terrorism Not Going Away

When he was first inaugurated as president in 2014, Sisi pledged that defeating those he perceived as terrorists was his first priority. But even with a vast military and intelligence apparatus at his disposal, he has not succeeded in this quest. Part of the problem is that the main terrorist group in the Sinai, called Wilayat Sinai, which is affiliated with the so-called Islamic State, has been able to continue to strike at government security personnel by taking advantage of the difficult terrain in the northern Sinai region as well as exploiting longstanding Bedouin grievances against the state. The government’s heavy-handed measures against Bedouin villages in the Sinai have often worked to refresh the terrorist ranks. In the wake of several attacks in northern Sinai, including against a Sufi mosque, in February 2018 the government deployed hundreds of additional troops to the region to clear the area of extremists. This deployment has resulted in declining violence, but it has not ended it, and the lull may be only temporary. In late July 2019, US Defense Department officials urged their Egyptian counterparts to take a more “population-centric approach,” which implies gaining the trust of the local populace in a counter-insurgency campaign.

When he was first inaugurated as president in 2014, Sisi pledged that defeating those he perceived as terrorists was his first priority.

Egypt’s other terrorism problem centers on two groups that reportedly broke away from the Muslim Brotherhood—Hasm and Liwa al-Thawra—by younger members who disagreed with their elders’ espousal of nonviolence. They have not only targeted security forces in the mainland but have gone after foreign tourists and Coptic Christians. In May 2019, an explosion occurred by a tourist bus near a museum in Giza, injuring a number of South African tourists, while in December 2018, terrorists struck a busload of Vietnamese tourists, killing three of them and an Egyptian tour guide. Obviously, these actors hope to undermine the tourism industry which has been on the rebound. Further, on August 5 of this year, 20 people were killed and 47 injured after a car bomb collided with other vehicles, triggering an explosion outside a cancer clinic in Cairo. The bombing was allegedly done by Hasm, according to the government.

Sisi’s administration’s approach has included not only arrests of suspects but what human rights groups have described as forced confessions after torture as well as extrajudicial killings. The government has also stepped up the use of the death penalty against those found guilty after quick trials. Although there is little public support in Egypt for the terrorists, which gives the government wide leeway to confront them, such harsh tactics and the lack of political space to voice opposition almost ensure that more disaffected young people will join such groups. In other words, the government has not comprehended that its own policies have contributed to an atmosphere where some young people believe that violence is their only recourse.

Friends in High Places

While Sisi has many detractors in Egypt and the West for his repressive policies, he also has many influential friends around the world. The Saudis and Emiratis still value their alliance with him, begun when he ousted Morsi and cracked down on the Brotherhood in the summer of 2013. They have also lavished Egypt with billions of dollars in grants and private sector investments. Outside the Middle East, Sisi enjoys strong support from President Trump, who has said the Egyptian leader has been doing a “great job.” The American president avoids criticizing the Egyptian government for the large number of political prisoners in the country; he and his administration have intervened only in the case of some dual American-Egyptian citizens who have been imprisoned. As for France, President Emmanuel Macron has spoken out on the need for the Sisi government to respect individual freedoms, but that has not stopped Paris from becoming a big arms seller to Cairo in recent years. Meanwhile, Russian President Vladimir Putin, an authoritarian leader himself who considers human rights a western conspiracy, has been eager to reestablish military and economic links to Egypt that were a cornerstone of the Soviet-Egyptian bilateral relationship during part of the Cold War. Russia has agreed to provide concessional loans to Egypt for the building of a large nuclear power plant west of Alexandria and, like France, has sold weapons worth billions of dollars to Cairo in recent years.

While Sisi has many detractors in Egypt and the West for his repressive policies, he also has many influential friends around the world.

An Unsustainable Model

Over the short term, Sisi is likely to hold on to power even though a majority of Egyptians are facing economic distress and political activists are under siege. Repression plus support from external players seems to be his formula for keeping his regime afloat.

A continuation of this policy is not a winning strategy over the long term. Unless he loosens up restrictions that would allow the private sector to flourish (and not just business people tied to the regime), reduce the military’s control of various businesses, and allow for a free flow of dissenting ideas, Sisi will not be able to generate the hundreds of thousands of new jobs needed to employ young Egyptians entering the workforce. With a stifling of dissent and a dearth of employment opportunities, young people are likely to come to the conclusion that emigration, street action, or violence may be their only ways forward. There may be “revolution fatigue” now after Egypt endured several chaotic years following the ouster of Hosni Mubarak in 2011, but the conditions that brought about the 2011 uprising persist and are arguably even worse now.

Instead of indulging Sisi, the Trump Administration needs to show some tough love toward him. Even though US assistance to Egypt, compared with that from other countries, is not what it used to be––$1.4 billion in fiscal 2019––Sisi still very much values Washington’s support. US policy-makers should use this leverage to call on Sisi to ease his repressive policies and truly open up the economy to the private sector to address vital political, social, and economic concerns. Otherwise, instability is likely to continue.

Gregory Aftandilian is a Non-resident Fellow at Arab Center Washington DC. To learn more about Gregory and read his publications click here