Egyptian President Abdel-Fattah al-Sissi should be pleased. The recent reports from international investment and finance companies like Fitch Ratings and Goldman Sachs give Egypt high marks for its economic performance.
The analysts are impressed by the stability of the inflation rate, which stands at 6.5 percent; by how the government is resisting the temptation to lower interest rates; by the Egyptian pound, which since its devaluation is maintaining a more or less uniform level in relation to the dollar; and by the International Monetary Fund’s prediction of 6.4 percent growth in the Egyptian economy in the financial year 2021-2022, alongside a forecast increase in its foreign currency reserves from $42 billion this year to $51 billion in 2024-2025.
Egyptian economists are feeling emboldened enough to write articles with titles like “Egypt returns to growth” and “Sissi’s reforms revived the Egyptian economy,” while ministers are reporting an increase in domestic tourism and expectations for a renewal of foreign tourism.
The problem is that these optimistic figures have not yet been translated into any real improvement in the standard of living, to a reduction in unemployment (now at 9.6 percent, about 2 percent higher than last year) or the poverty that affects half the population.
According to a report from the Egyptian Institute for Economic Research, the unemployment rate is liable to soar to 14 percent this year. The most pessimistic prediction puts that figure at 20 percent.
The report attributes the difficulty in overcoming the employment crisis – which mainly affects educated people between 24 and 34, and women in general, and has led to mass layoffs and dramatic pay cuts – to the coronavirus crisis. But there are other factors, deriving from built-in obstacles in the Egyptian economy that have been an issue for decades.
One is the military’s control of many industries in the civilian economy, including manufacturing industries that have nothing to do with the security sector and the army’s needs, with preference in hiring often given to people with military connections and contractors with ties to the army rather than fully involving the private sector.
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This barrier, combined with the low level of income in Egypt, led millions of Egyptians to become migrant workers – primarily in the Gulf states, from where they sent home more than $25 billion annually.
The high number of Egyptian workers in these countries and the economy’s dependence on these money transfers is now having a devastating boomerang effect at a time when the Gulf states are also dealing with the pandemic. For example, there are 700,000 Egyptians working in Kuwait whose status has become extremely tenuous. Kuwait recently announced that foreign workers who go back to their home countries will not be permitted to return as long as the pandemic continues.
Many more workers were laid off due to cutbacks in the Kuwaiti economy and forced to return home, where they can hardly find work or any source of income. Some have gone back to working in agriculture, working plots of land they purchased with their savings. Others, mainly blue collar workers, have registered as unemployed and have little chance of finding new jobs.
An improvement in the unemployment situation could come from economic development and the construction of new factories or housing projects. But at a time when direct foreign investments are expected to top out at just $5 billion this year, with tourism nearly paralyzed and major projects – such as the expansion of the Suez Canal and the construction of the new administrative capital – looking more and more like white elephants, it’s hard to see where new jobs will come from.
This year Egypt was compelled to apply for more loans from the IMF – which it received – after it had already received a $12 billion loan. The two new loans, one for $2.8 billion and a second for $5.2 billion, have been added to the massive external debt Egypt now holds: $120 billion, or about 90 percent of the country’s GDP. This will require Egypt to make annual payments of $13 billion and to have about a quarter of its debt redistributed.
According to an assessment included in a study conducted by the Arab Reform Initiative (a pan-Arab think tank that examines political and economic issues in the Middle East), Egypt will have to raise interest rates in order to halt inflation and prevent the flight of capital, reopen the rate of the Egyptian pound and increase the volume of loans.
Sissi is being praised for the bold reform programs he began implementing in 2016, which included a reduction of subsidies, raising fuel prices, lowering the proportion of the health and education budgets, and cutting government manpower. These reforms led to a significant reduction in the budget deficit – from 12.5 percent in 2016 to 6.7 percent in 2019 – and gained the trust of the international financial institutions. But they also come with a heavy social cost: the collapse of part of the middle class and a substantial increase in poverty.
One source of more positive news for the future is the huge Zohr natural gas field in the Mediterranean, which was discovered by the Italian energy company Eni. This field could potentially produce billions in revenue for Egypt. The problem is that gas production and sales were very hard hit this year because of the pandemic, which caused industrial activity to plummet around the world and demand to plummet along with it.
Egypt is also concerned that the United Arab Emirates will choose to send its oil via the Eilat-Ashkelon pipeline and not via the Suez Canal, which would further reduce Egypt’s revenue from the waterway.
Sissi’s Egypt will struggle to get by on the compliments being lavished on it by international institutions and analysts in New York. The Egyptian street may not be prepared to wait for the president’s vision of prosperity to come true.