by Claudia De Martino
L’Egypt came out of the military coup of Abdel Fatah al-Sisi in 2013 it never enjoyed good economic conditions, but it never seemed so close to the edge of the abyss as it is today, or on the verge of sink in a debt spiral that is difficult to heal.
In December 2022, Cairo signed the latest agreement with the International Monetary Fund (IMF) to obtain 3 billion dollars of additional loans to finance its public debt, which today stands at 163 billion dollars and is estimated to be equal to 95% of GDP. An economic situation of growing distress which is due to the great global crises of recent years – in particular the Covid-19 epidemic and the outbreak of the war in Ukrainewith its strong impact on the export of grain of which Egypt is the main importer – but also linked to structural problems that the General was unable or unwilling to address, on pain of a new wave of instability in the country.
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Up to now, in fact, the preferred channel by the Egyptian government to reduce the foreign investment deficit has been that of financial assistance from the Gulf countries, and in particular from the United Arab Emirates and Saudi Arabia – more flexible than that of the IMF and the World Bank as free from formal constraints. However, in April 2022, during a visit by President Morsi to Jeddah aimed at securing an additional tranche of aid from Riyadh, Saudi Finance Minister Mohammed al-Jadaan has announced his intention to coordinate Saudi loans with those of the IMF, submitting them to the same rules of the latter, or binding them to the need for reforms, signaling the closure of a post-Arab Spring era in which subsidies from the Gulf countries to Egypt were almost unconditional. Only formally, because in reality Cairo’s dependence on Riyadh had already led to the cession of the Egyptian islands of Tiran and Sanafir in the Red Sea to Saudi Arabia in 2017 as a form of compensation for the loans granted since 2013.
But what are the structural limits of the Egyptian economy to which Morsi didn’t want to or was able to remedy?
With a population close to 106 million, with very high rates of illiteracy (25% today) and poverty (26.7% in 2012, today rising to around 30% after the strong devaluation of the Egyptian pound since 2016), the President announced in 2013 the start of a new season of development, articulated in the launch of gigantic urban and infrastructural projects that would have modernized the face of the country: the plan for one million new social housing with the parallel dismantling of the slums to the appendages of the big cities, new promenades along the seafront in Alexandria, the doubling of the Suez Canal, the construction of a new technological megalopolis with administrative functions and future capital in the desert about 32 km from Cairo, the construction of a nuclear reactor for electricity generation, the construction of 1350 km of new roads and a high-speed railway between Cairo and the Red Sea.
All this without considering the financial coverage necessary to carry out these works, which are now underway but did not finish, while soaring inflation erodes the few remaining foreign currency reserves held by the Bank of Egypt and foreign investment languishes. In fact, Cairo has failed to reassure potential foreign investors about the fluctuation of its currency and about the unfair competition exercised by the galaxy of state-owned companies held by the Army, which, exempt from taxes (also from real estate tax and the new VAT introduced in 2016 following the reforms induced by the IMF) and by tariff and customs barriers entering and leaving the country, as well as using the free labor provided by conscript soldiers (about 438,000 in service plus reserves), manage to place commercial products on the Egyptian market at half the cost of private operators.
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The senior ranks of the army, the same ones who put al-Sisi in power – expression of the three powers of the Ministry of Defence, the Ministry of Military Production and the Arab Organization for Industrialization (AOI) – have in fact seen their turnover growing strongly in recent years, arriving today to own about sixty companies operating in numerous productive and strategic sectors, such as the petrolium (Wataniya Petroleum), weapons and paint (Heliopolis Co.), the marketing of water (Safi), construction companies (Maadi Co.) and cement production (El Arish Cement Co.), some of which are even publicly traded. Finally, the last business of the armed forces was film production, carried out through a semi-monopoly company (Synergy Art Production), known for its productions nationalists centered on the celebration of the heroism of the Egyptian people and the posthumous glorification of the coup.
The IMF and even the Gulf countries are pressing for the introduction of reforms that liberalize the Egyptian market and so that military industries are no longer a protected government fiefdom but open to private participation, but so far al-Sisi doesn’t seem to want to give in on this point, fearing a new military coup that could oust him from power. Rather, the Government considers the possibility of sell off public assetswhose ownership was transferred in 2018 to the management of an opaque Egyptian sovereign fund, which could sell shares of the assets to the Gulf countries in compensation for the loans received.
In the background remains one unarmed mass of Egyptian citizens which slips more and more into poverty and inertia without any possibility of influencing the choices of the country, constantly intimidated by the memory of the “civil war” which took place in 2013 and by the silent presence of those 66 thousand political prisonersstill held in the prisons of the regime, which represent a warning against any wish to resist the dictator.