On April 4, 2022, Gulf Arab countries pledged $22 billion to help Egypt avert a currency crisis resulting from the Russian war on Ukraine. The Egyptian pound lost about 14 percent of its value to the dollar. Additionally, Egypt has since the beginning of the year been facing a severe economic and financial crisis due to the effects of the COVID-19 pandemic and the consequences of the ongoing war in Ukraine. The surge in food, oil, and energy prices—coupled with the inefficient economic policies of the regime of President Abdel Fattah el-Sisi—increased the suffering of ordinary Egyptians, which raises the specter of another political and social turmoil similar to the Egyptian uprising in early 2011. The key questions now appear to be why Gulf countries seem keen to provide financial and economic support to Sisi’s regime and to what extent can the financial bailout really rescue it and Egypt in the medium and long terms?
Egypt’s Economic Woes
Over the past few months, Egypt’s economy has suffered from several problems that range from a significant level of foreign debt, higher inflation, a declining tourism sector, a key source of national income, and an outflow of billions of dollars following the March currency devaluation that prompted the Gulf aid. According to some reports, “by the end of the 2020/2021 fiscal year, Egypt’s total debt reached $392bn. That includes $137 billion in external debt, which is four times higher than [it was] in 2010 ($33.7 billion). It also includes $255 billion in internal debt, according to the Central Bank of Egypt, almost double domestic debt in 2010.” These levels of internal and external debt jeopardize Egypt’s gross domestic product and add more wounds to its ailing economy. “In 2021, Egypt ranked 158th of 189 countries in the ratio of debt to GDP and 100th in debt per capita.” Moreover, Egypt’s bond sales are expected to soar to $73 billion in 2022 which will add more difficulties to the Egyptian economy and probably threaten a sovereign debt crisis.
The Egyptian government spent billions of dollars on large and luxurious projects that don’t benefit average Egyptians or meet their necessary and basic needs of food, health, education, and other social services.
Egypt’s economic and financial woes have been piling up over the past few years due to different factors. First, the Egyptian government spent billions of dollars on large and luxurious projects that don’t benefit average Egyptians or meet their necessary and basic needs of food, health, education, and other social services. Suffering from the lack of political legitimacy, the Sisi regime relies on what Robert Springborg has called the “’wow’ factor of mega-projects and weapons purchases to bolster his legitimacy.”
Second, Sisi’s economic policy (if we could speak of any) is anchored around one strategy: borrowing. As Springborg puts it, “Egypt has become a beggar state, its economy ever more reliant upon foreign support, especially loans.” At the current rate of borrowing, the total national debt is predicted to rise to $557 billion by 2026. The cost of servicing debt is significant and affects government’s public expenditure. While the budget for 2020-2021 reached $93 billion, debt servicing was a third of that, or $30.7 billion. Strikingly, despite this pace of borrowings and loans, the conditions of life for most Egyptians haven’t improved. In 2021, one third of Egyptians lived below the poverty line and unemployment reached 7.4 percent in the last quarter of the year.
Third, the expansive role of Egypt’s military in the economy leaves no room either for the private sector to grow and compete or for attracting foreign investments. Since the coup of 2013, the Egyptian military has been involved in almost every aspect of the economy from construction and real state to food, beverages, and vegetable production. This expansion of the military’s economy comes at the expense of the private sector and businesses that can’t compete with the army’s companies. More importantly, the performance of these companies is notably weak and inefficient. According to an International Monetary Fund (IMF) assessment of Egypt’s economy in 2021, “the Egyptian government plays a large role in the economy through the presence of state-owned enterprises across almost all sectors—including public business sector companies, military-owned enterprises, and economic authorities—with many registering weak financial performance while some are benefiting from an uneven playing field vis-à-vis their private sector counterparts.” The Officers’ Republic, to use Yezid Sayigh’s terminology, needs to be dismantled in order to give space to Egypt’s economy to breathe and flourish.
This expansion of the military’s economy comes at the expense of the private sector and businesses that can’t compete with the army’s companies.
Finally, Egypt’s economy has been seriously affected by the COVID-19 pandemic and the ongoing war in Ukraine. According to the IMF, the pandemic directed a huge blow to the Egyptian economy and “the fallout was immediately felt through a sudden stop in tourism—which, at the onset of the crisis, accounted for around 12 percent of GDP, 10 percent of employment, and 4 percent of GDP in foreign currency earnings.” Moreover, Egypt “experienced significant capital outflows of more than $15 billion during March-April 2020 only as investors pulled out of the emerging markets in a flight to safety.” Similarly, the impact of the Russian war on Ukraine on Egypt is tremendous. On April 5, Standard and Poor issued a report on Egypt’s Purchasing Manager Index where it points out that “The Egyptian non-oil economy suffered a strong decline in business conditions in March, as an amplifying of inflationary pressures on energy, food and raw materials amid the Russia-Ukraine war led to sharp decreases in output and new orders.”
Gulf Aid to Egypt
To meet these economic and financial challenges, Sisi’s government had to seek help either from its regional allies or from international borrowers such as the IMF. A few days before Russia began its war on Ukraine, Sisi visited Kuwait and on March 8, he paid a visit to Saudi Arabia where he met King Salman and his son Crown Prince Mohamed Bin Salman. Both visits were believed to be for the purpose of seeking financial help to avert the fallout of the war in Ukraine. Furthermore, Sisi’s regime is open to receiving support and help from Qatar despite the tensions that clouded the Egyptian-Qatari relations during the past few years.
Sisi’s regime is open to receiving support and help from Qatar despite the tensions that clouded Egyptian-Qatari relations during the past few years.
On March 21, the United Arab Emirates announced that it will invest $2 billion in Egypt in order to mitigate the impact of the Russian war on Ukraine on Egypt. Most of these investments were made at different companies where Abu Dhabi’s sovereign fund bought into “Commercial International Bank, Fawry for Banking & Payment Technology Services SAE, Alexandria Container & Cargo Handling Company, Misr Fertilizers Production Company and Abu Qir Fertilizers & Chemical Industries.” The amount is part of a $20 billion investment plan which was agreed between the two countries in 2019. However, the timing of pumping the $2 billion now is critical for the Egyptian economy and Sisi’s regime.
Also, Qatar pledged to invest around $5 billion in Egypt in the coming years. On March 29, Qatar Foreign Minister Mohammad bin Abdulrahman Al Thani visited Cairo and met with his Egyptian counterpart Sameh Shoukri, el-Sisi, and other officials. A statement made by the Egyptian government stated that the $5 billion package is meant to “strengthen economic and investment cooperation between the two brotherly countries.” Qatar’s investments in Egypt have focused on the real state and oil sectors, including the building of a $1.3 billion luxury hotel on Cairo’s Nile Corniche. Moreover, Qatar Energy company signed an agreement with ExxonMobil in which it “will acquire 40% of North Maraca marine area in the Mediterranean, while ExxonMobil (the operator) will own the remaining 60 percent stake.”
In addition, Saudi Arabia joined UAE and Qatar in providing financial support to Sisi’s regime. On March 30, Riyadh deposited $5 billion in Egypt’s central bank in order to help it stabilize its currency and financial institutions which have been facing mounting pressure. In addition, Saudi Arabia’s state-owned Public Investment Fund (PIF) plans to invest $10 billion in Egypt in the coming years.
It’s Politics, Not the Economy, Stupid!
Gulf aid and support goes beyond Egypt’s economic and financial crisis. It reflects a policy priority and political commitment toward the country, the largest and most populous Arab country. It also indicates the shared interests and common fears between Gulf Arab countries and Egypt. Saudi Arabia and the UAE, for example, have been politically involved in Egypt for the past nine years. Driven by their fear from the Arab Spring and its dramatic upheavals, both countries are keen to prevent any political change that could happen in the region, particularly in Egypt. Both were among the first countries in the region to welcome the coup of 2013 against the late Mohammed Morsi, Egypt’s first democratically elected president. After the coup of 2013, Saudi Arabia, UAE, and Kuwait provided significant political and financial support to Sisi’s regime. They poured billions of dollars over the past few years in order to stabilize it and to block any political change in Egypt. The three countries provided about $30 billion in aid to Sisi’s regime by placing deposits with the Central Bank of Egypt and supplying petroleum products as grants between July 2013 and August 2016.
Gulf aid and support goes beyond Egypt’s economic and financial crisis. It reflects a policy priority and political commitment toward the country, the largest and most populous Arab country.
In addition, the changing regional dynamics and realignments have brought Egypt, Saudi Arabia, and the UAE closer over the past few years. Their animosity regarding the Muslim Brotherhood and the fear of the regional role of Turkey and Iran cemented their relationship which formed together a regional axis over the past few years. That axis also has three key goals: aborting democratic change in the region, uprooting political Islam, and countering Iran and Turkey’s influence. Egypt has been a key player in achieving these goals over the past few years and Sisi has been shrewdly exploiting the Gulf countries’ fears of another wave of the Arab Spring, hence, securing their financial and economic support.
In addition, the recent rapprochement between Qatar and Egypt helps Sisi to secure more financial and economic aid. Despite the political differences between them since the coup of 2013, regional and global changes prompted both to work out their differences and reassess their bilateral relationship over the past year. On the one hand, coming out of three and a half years of blockade imposed by Saudi Arabia, UAE, Egypt, and Bahrain, Qatar seeks to widen its regional partnerships, enhance ties with major regional players, and strengthen its role on the regional and global stage. For Doha, Egypt remains a key player that can help achieve these objectives. On the other hand, Sisi’s regime is in a dire need for foreign investments and financial support in order to remain afloat. After years of accusing Qatar of supporting terrorism and destabilizing Egypt, the Sisi regime changed course and its officials are now praising Qatar’s regional and global role.
Could Gulf Aid Save Egypt?
Egypt has received billions of dollars either from regional forces or global institutions over the past few years. However, the country is suffering economically and financially, which raises a legitimate question about the impact of the recent financial packages it received or will receive from the Gulf Arab countries and whether they can improve the lives of ordinary Egyptians.
There are serious doubts that the Gulf aid would make a real difference in Egypt’s economy in the longer term.
In fact, there are serious doubts that the Gulf aid would make a real difference in Egypt’s economy in the longer term for several reasons. First, Sisi’s regime had received similar financial packages between 2013 and 2016 from the Gulf countries which helped it survive the post-coup difficulties. However, these large sums of aid didn’t trickle down to the society or improve the lives of ordinary Egyptians. In fact, most economic and human development indicators show the opposite. Poverty in Egypt reached new heights during the past decade and the Egyptian government failed to deliver proper health or education services which worsened living conditions for most Egyptians.
Second, most of the foreign aid and loans go to mega projects such as building a new capital which cost around $58 billion and expanding luxurious real estate housing, both of which ordinary Egyptians cannot afford. Third, Sisi’s economic policies don’t target average Egyptians but are rather tailored to serve his own supporters and cronies, particularly those in the military and security services. Finally, the lack of accountability and transparency in spending financial aid packages, coupled with Egypt’s endemic corruption, cast doubts about their feasibility and whether they can improve Egypt’s economic situation.
To be sure, the Gulf aid to Egypt is nothing but a temporary pain relief for Egypt’s chronic problems. It will unlikely help Sisi’s regime to avoid what seems to be an inevitable economic and financial disaster the timing of which is hard to predict. What is certain is that Gulf aid helps serve Gulf countries’ political goals of a stable Egypt just as much as it assists Sisi maintain some semblance of economic stability in his country.