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Ten Years Later: Quo Vadis, Egypt?

Ten years after the Muslim Brotherhood was ousted from power, the Egyptian economy is facing enormous challenges, with no clear way forward in sight.
Troops from the Egyptian army and police forces deploy near Cairo University in Giza on 3 July 2013.

A decade ago today, the Egyptian armed forces ousted the Muslim Brotherhood, an Islamist group that had governed Egypt for twelve tumultuous months. These turbulent events abruptly ended a 40-year period during which the Brotherhood had emerged from the shadows of Egypt’s prison system to reach the pinnacle of power in June 2012, only to fade into obscurity a year later.

As the political transfer of power unfolded on the streets of Cairo in early July, Gulf governments swiftly put together a $12 billion package to rescue an economy that was seen as too big to fail. In light of Egypt’s geostrategic location, cultural influence, and – at the time – 95 million-strong population, nobody wanted to see a Syrian scenario on the banks of the Nile. 

After a period of repression against the political opposition, the new ruling elite around President Abdelfattah el-Sisi turned its focus to economic development. In March 2015, during the ‘Egypt the Future’ conference in Sharm el-Sheikh, the government unveiled a number of giga-projects that included a summer capital in New Alamein City, some 20 ‘smart cities’, as well as numerous other large-scale infrastructure development projects. 

The jewel in the crown of the new regime was the New Administrative Capital, a futuristic city with a government district with all ministries as well as parliament, a vast presidential palace, and an iconic “highest tower in Africa” in the business district. Spread across 700 square kilometers (the size of Singapore) to the east of New Cairo, the capital was to become home to seven million Egyptians. Its strategic purpose was obvious: to remove the nerve centre of political power from the densely populated capital Cairo, and specifically Tahrir Square, where the previous regime had been toppled by a popular revolution in 2011. 

To finance these mega-projects, Egypt turned to the International Monetary Fund and in 2016 received a $12 billion grant under a programme requiring Egypt to undergo deep-seated structural reforms, including the devaluation of the currency, and the creation of “an enabling environment for private sector development”. Complementing the deal, Saudi Arabia and the UAE deposited another $4 billion in the Central Bank of Egypt. 

But over the coming years, the Egyptian pound kept sliding back despite all support measures. It became increasingly evident that Egypt’s economic miracle was failing to materialize. In April 2022, after Egypt’s cash reserves had dropped to dangerously low levels, Gulf governments channelled another $22 billion into the Egyptian Central Bank. In January 2023, Egypt received its fourth IMF loan of $3 billion in order to “pave the way for inclusive and privatesector-led growth”, as the Fund’s January 2023 country report stated. 

The latest IMF loan was closely linked with Egypt obtaining support from its Gulf partners, mainly Saudi Arabia and the UAE, who now attached new conditions to their loans. The UAE had paid $18 billion to Egypt in the first eighteen months following the coup and overall Gulf support during the Sharm el-Sheikh conference was estimated as high as $35 billion. But while in 2013 Gulf loans had consisted primarily of deposits and grants in the Egyptian Central Bank, in 2015 Abu Dhabi started to demand structural economic reforms and urged Egypt to open the books of its state-owned and military-owned companies, seen as “strategic assets”. In January 2023, Egypt committed to selling stakes of 32 companies, including major national heavyweights such as Banque du Caire, United Bank of Egypt, and Wataniya Petroleum, but little has happened so far. 

Meanwhile, the Egyptian economy seemed to be in an inevitable decline. The value of the currency had dropped from 9 Egyptian pounds to the dollar in 2013, to 18 in 2016, to 31 in 2022, and today stands at 41 pounds to the dollar. Money exchange offices in Cairo mostly do not even have dollars, forcing Egyptians to pay over 50 pounds on the black market – six times more than in 2013. After various rounds of devaluation, Covid-19, and the Ukraine war, inflation is officially at 32 percent, but in reality, the situation is worse. For instance, one kilogram of beef in Heliopolis today costs around 400 pounds, while a year ago the price was 120. Real estate prices have plummeted, too. A two-bedroom apartment in an upscale neighbourhood in Alexandria, which a few years ago netted some $60,000, today sells for a mere $6,000. 

The picture is not altogether bleak, however. The World Bank predicts 4.7 percent GDP growth in 2024/25. Egypt has well-developed production, distribution, and export infrastructures, and there is an abundance of highly-skilled workers on the market. In 2014, the country implemented an important energy subsidy reform and embarked on a significant infrastructure expansion, investing in roads, transportation, and railway. The discovery of the Zohr gas field in 2015 made Egypt a net electricity exporter and the country has the potential to become a global hub in the space of electricity, energy, and logistics. Egypt, moreover, gained global praise in the green energy sector, hosting the COP27 climate summit last year and putting itself on the global energy map thanks to its wide solar and wind resources. Levels of cooperation with the EU on climate, energy, and the green transition are intensifying as well.

In terms of its underlying fundamentals, however, the economy is in bad shape. Growth figures are inflated by public spending and a booming natural gas sector, while Egypt’s debt addiction means that more growth always comes with more debt. The debt-to-GDP ratio has hovered between 99 and 108 percent in the last eight years, while Egypt’s total external debt has risen from $43bn in 2013 to $165 billion today – a fourfold increase in a decade. Financial planners in Cairo find it increasingly difficult to raise cash for debt repayments, while state media invents all kinds of miraculous money-making schemes to tempt citizens to “invest” cash for fabulous returns of 25 percent – only for the pound to be further devalued. Businesses are disinvesting their assets due to the unpredictability of the price of the dollar, and there is overall a deep pessimism and a loss of hope among Egyptians of all socio-economic classes. 

Yet, much of the attention of the government rests on the completion of its vanity projects. The NAC has become a matter of survival for the Sisi presidency (and of ridicule for the Egyptian population). Sisi said on numerous occasions that the state would pay “not even a penny” for the new capital. But in reality, Egypt since 2015 had spent hundreds of billions of dollars on these projects. They are financed through loans from state-owned banks, which provide capital to selected government bodies charged with developing the metropolis. In other words, the treasury takes up debt to finance Sisi’s patronage networks. As pointed out in a recent report published by Pomed, this amounts to little but a massive redistribution of public wealth to private military-owned companies, all the while transferring the risk back to the state. 

As the IMF knows very well, at the heart of Egypt’s economic predicament is the outsized influence of the military, and more specifically of the Supreme Council of the Armed Forces (SCAF). At the center of this apparatus sits President Sisi, who governs through a tight circle of supporters controlling the state’s key institutions and agencies. Sisi regularly reshuffles the 25 or so generals of the SCAF to avoid creating another Mohammed Tantawi, the powerful previous chairman of the SCAF, in his midst. Through their clientele networks, SCAF members run large parts of the economy, from petrol stations, greenhouses, pasta factories, cement plants, hotels, transportation networks, and logistics hubs. Unsurprisingly, these military-owned companies are crowding out the private sector, which cannot compete with free conscript labour, lenient regulations, low taxes, and preferential access to land, water, electricity, and capital.

Despite his grip on the inner levers of power, Sisi walks a perilous path. On the one hand, the urgency of the economic situation necessitates swift action, and one option would be to implement the IMF’s structural reforms, including the devaluation of the currency and the privatization of state-owned companies. This approach carries the risk of potential backlash from both the Egyptian populace and the military establishment. 

Sisi’s other option is to drag things out further, ask for more leniency from lenders, renegotiate debt repayment schedules with the IMF, and hope for his Gulf brothers to keep bailing out the economy whenever reserves dwindle. Given Sisi’s parading on the global stage in the last few weeks, Egypt will likely follow the second option. But it is unclear how long Sisi can play this game. 

The pattern of military control over the state in Egypt has deep historical roots, going back to the Mamluk military dynasty that dominated for centuries. It was re-established in modern times in 1952, when the Free Officers overthrew the monarchy. The regime of Gamal Abdel Nasser, while brutal towards its opponents, was nevertheless fuelled by a positive outlook, epitomized in the ideology of Arab nationalism, and the charismatic za’im was a hero for millions of Arabs. Political stability was based on a social contract that guaranteed public sector employment in exchange for political acquiescence. Economic life, too, was more stable and less vulnerable to external shocks. And unlike Sisi, Nasser (as well as Sadat and Mubarak after him) could fall back on the support of a strong nationwide party organization with deep roots in society – the Arab Socialist Union. 

The world of Sisi and his inner circle is different from that of the Free Officers, and Sisi is a different leader than Nasser. With Egypt having lost the leadership of the Arab world to Saudi Arabia, Sisi’s regime is devoid of any ideology except that of neoliberal capitalism. He has no party apparatus he can rely on and no project of social transformation other than the corporatist nationalism epitomized in the New Administrative Capital with its monumental, neo-Pharaonic architecture. With the loyalty of the population increasingly frail, the only thing that keeps things together is the (hopefully) unwavering loyalty of the Gulf monarchies as the only true guarantors of stability in Egypt. 

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