Geopolitics

Egypt: A Challenging Future

January 21, 2020

Louis Tayler

 

 

Key Judgements

 

  • Egypt has chronic problems that any government, even one with fewer corruption problems would struggle to solve easily.

 

  • As long as Sisi’s government is able to deliver regular economic development, and guarantee security, he will stay in power.

 

  • In the long term, the Renaissance Dam Project in Ethiopia threatens Egyptian water supply and stability.

 

 

Egypt is a country with a highly challenging set of conditions for any government. The Egypt inherited in 2014 by President Sisi had chronic problems. The tourism industry was in tatters following the revolution, and trust of foreigners in Egypt had to be rebuilt. The poorest in Egypt were heavily reliant on fuel and food subsidies, which while a useful mechanism to stop revolutions and appease society, were highly detrimental to the Egyptian budget and economy. The security situation was dire, as both President Morsi and President Mubarak had been removed from power in an unconstitutional manner, following protests in 2011 and 2013 respectively.  

 

 

Sisi’s government has already undergone a dramatic shift in economic and domestic policy. Where energy subsidies used to consume 20% of the government’s budget, the Egyptian government now provides fuel roughly at cost, for a fixed price. This gives stability of prices to the Egyptian public while drastically lowering the cost to the taxpayer. The other major subsidy cost to the Egyptian government is that of food, which the government is also trying to reduce, albeit not always successfully – in October 2019, two million Egyptians were added back onto food subsidy in response to protests across the country.  However, this programme currently costs the Egyptian government over $5bn yearly, and needs to be better managed to target only the poorest the country.

 

 

The poorest have been visibly hit by government-imposed austerity. The poverty rate in Egypt is growing rapidly. In the year 2000, 16.7% of Egyptians lived in poverty. That number rose to 27.8% in 2015, and then to 32.5% in 2018, with 6.2% of Egyptians living in extreme poverty (less than $1 per day) –  it seems likely that this poverty will have risen over 2019 and more than one third of Egyptians will now be living in poverty. The improvements in macroeconomic indicators will be of little concern to the average Egyptian, who can clearly see the falling quality of life and rapidly raising cost of living in the country.

 

 

Despite all this, the Egyptian economy has been growing at a steady rate, averaging about 5.6% GDP annual growth rate in 2019. This growth is respectable, and it seems likely that the number of Egyptians in poverty will fall, especially now that Egyptians have been weaned off huge public fuel subsidies and reduced food subsidies. Whether the poorest in Egypt can benefit from this growth in the short-to-medium term is uncertain.

 

 

 

 

Furthermore, the usual agreement between autocratic government and population in Egypt has been an exchange of civil liberties for economic development, and stability. If Sisi can stay the course, provide reasonable improvements and growth over the next few years (after this period of austerity), then his future as the President of Egypt will be relatively secure. If on the other hand, poverty rates continue to climb, it seems likely that Sisi’s support within the military, as well as in the wider population will be eroded.

 

 

The anti-Sisi protests in Egypt in late 2019 are symptomatic of a population that is deeply unhappy with poverty, economic conditions and corruption. However, the part of the agreement between autocratic government and the population is that the majority accepts that the government will crack down on protestors severely, and the protests in 2019 have been limited in comparison to those that toppled Morsi or Mubarak.

 

 

Egypt has several troubling issues, some of which remain un-addressed. While Sisi’s government has attempted to deal with dependence on subsidies and seems able to deliver reasonable economic growth, it remains to be seen whether he will be able to reform other areas, such as the military-owned industrial sector, corruption and nepotism, to say nothing of the longer-term issues to do with Egyptian water supply and the Ethiopian Renaissance dam project (covered in part by this Grey Dynamics Intelligence Assessment), which threatens to destroy anywhere between 17-51% of Egyptian agricultural land, depending on how the reservoir is filled. Some positive steps have been taken, but further painful reforms are required. The most impoverished in Egypt will need to start seeing some improvements if President Sisi wishes to stay in power with ease. If they see no such improvement in the next few years, expect greater protests than those that took place this year, as well as a deteriorating security situation.

 

 

 

 

 

 

 

Image: Countercurrents (link)

 

 


Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Grey Dynamics LTD.

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