Who's still investing in Egypt's economy?
Egyptian security officers stand at a military checkpoint at the Supreme Constitutional Court building on the Nile River corniche in the Maadi district, on Aug. 18, 2013 in Cairo, Egypt.
As Egyptian courts mull releasing deposed dictator Hosni Mubarak from prison, Egyptians are offered a reminder of a perhaps-not-so-bygone era of political repression. The military and the Muslim Brotherhood continue to clash over the reins of power in spectacularly bloody fashion.
The great irony given Egypt’s current condition is that it’s economy was actually doing alright before the Arab Spring. “It was talked about as the next emerging market,” says Isobel Coleman, senior fellow at the Council on Foreign Relations. “Mubarak put in place a number of economic reform that led to strong growth rates in the 5 6 7 percent range.”
The trouble at the time was that many people felt left out of that growth. The beneficiaries seemed to be linked to the military or the elite.
Things have gotten worse since the revolution, says Samer Shehata at the University of Oklahoma. Investment froze, “tourists were not coming back into the country, there were fuel shortages, prices had gone up, the Egytpian currency had deteriorated, bonds were downgraded.”
The tourism industry is particularly important as a source of jobs and foreign currency, which Egypt uses to import wheat. It’s the world’s largest wheat importer. “In 2010, Egypt had about 15 million tourists,” says Jon Alterman, head of the Middle East Program at the Center for Strategic and International Studies. “Now I’d be surprised if they had half that.”
Add to that one of Egypt’s long-term economic problems: costly government subsidies on food and fuel that take up about a third of the annual budget. “It’s eating up such a large portion of government spending that it’s preventing the Egyptian government from investing in other more productive uses of its resources,” says CFR’s Coleman.
Massive increases in aid from Gulf countries have helped shore up the Egyptian economy.
Libya and Qatar have given billions during the Morsi regime, and after his fall Saudi Arabia, Kuwait, and the United Arab Emirates have stepped in with $12 billion in grants and concessionary loans,j says Coleman. But aid on that scale is not sustainable.
“Everyone knows what has to happen to help fix the Egyptian economy,” says Alterman at the CSIS. The subsidies have to be reduced, for starters. Other analysts point to a smothering bureaucracy and red tape that need reform in order to promote economic activity. “The problem with doing those things is not that people don’t know what to do, it’s that people don’t want to do it because it costs money it raises prices for the poor,” something for which there is little political will.
Alterman says it’s not impossible for Egypt to recover, but it will take years.