Analysis |

The Saudis Will Invest $8 Billion in Egypt. Now All It Needs Is $142 Billion

Egypt is falling $150 billion short; it’s rough when half the state budget is for debt and interest payments while education and health go underfunded – during a pandemic and Russia’s ruinous war

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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A landowner counting bags of wheat on a farm in Egypt's Nile Delta last month.
A landowner counting bags of wheat on a farm in Egypt's Nile Delta last month.Credit: Amr Nabil/AP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

“Don’t ask what Egypt has done for you, ask what you can do for Egypt. Well, my portion of the budget this year will be 42 Egyptian pounds [$2.24]. I hereby donate this to the Long Live Egypt Fund, and long live the Egyptian beggars’ union!”

This scorn came in response to an article on the state budget, which was approved this month. The Long Live Egypt Fund was founded in 2014 on the order of President Abdel Fattah al-Sissi to collect donations from the public for national construction projects. Sissi himself declared that he was forgoing half of his $60,000 annual salary and half of his assets for the fund.

Wealthy businesspeople also donated millions of Egyptian pounds, with the Egyptian army donating 1 billion Egyptian pounds out of its unsupervised budget. But since then, the fund has become a byword for waste and unsupervised public funds. It’s more like a private, extra-budgetary stash to finance the president’s projects.

These ostentatious projects were at the heart of a very tumultuous session in the Egyptian parliament this month when the budget for the 2022-23 fiscal year, which begins on Friday, was discussed. Some legislators said the proposed blueprint was unconstitutional.

For example, the constitution says investment in education must reach 6 percent of gross domestic product, but the proposed budget allotted only 3 percent. For health spending the constitution mandates at least 3 percent of GDP, but the budget only stipulated half of this.

“We have tens of billions to invest in a high-speed rail line, but we have no money for education and health,” shouted MP Mustafa Bakri, who is also a journalist.

As another MP put it, “The government is paying billions to advisers and for spending on prizes and propaganda, but it’s not advancing vital services, especially education.”

And even some who supported the budget, like Finance Committee chief Ahmed Samir, warned that the deep deficit could force the government to sell national assets. As expected, after all the shouting and fire-breathing speeches, the $111 billion budget and its 14.5-percent deficit were passed.

Egyptian President Abdel-Fattah el-Sissi greeting Saudi Crown Prince Mohammed at Cairo International Airport earlier this month.Credit: Bandar Aljaloud/Saudi Royal Palace/AP

Like most Egyptians, the reader who wrote the snarky comment isn’t so interested in all these big numbers. He looks at the rising price of bread and gasoline and worries that his name will be scratched from the list of recipients of direct government aid, a number set to shrink by 200,000 this year.

He knows that this year, too, like millions of other Egyptians, he’ll have to pay private tutors to prepare his kid for high school or university. Egypt suffers a shortage of tens of thousands of teachers every year, and this year the Education Ministry has pledged to hire another 30,000 teachers as part of a five-year plan to add 150,000 teachers to the system.

But these teachers will end up doing what their colleagues already do. They’ll make most of their money from private lessons, an industry worth an estimated $25 billion from 2019 to 2021. The situation in medicine is no better; the commitment to hire 30,000 more doctors, nurses and other medical staff this year is only a pittance in a country topping 105 million people.

At a press conference, Finance Minister Mohammed Maait explained that Egypt is grappling with both the pandemic and the war in Ukraine, two unforeseen blows that drastically impaired the country’s ability to meet its commitments.

According to official figures, Egypt now has to pay $500 per ton of wheat, compared with $200 before the war, while the cost of imported oil has doubled. The two events have ramped up borrowing by Egypt from international monetary institutions.

Then there are the rising interest rates, in the wake of the United States' moves. The result is that about half the budget pays off debts and interest payments as inflation climbs to 9 percent and the economic growth forecast falls from 5.5 percent to 4.9 percent.

It’s not hard to see what can rescue Egypt from this crisis. Egypt needs $150 billion in investments, which it’s trying to scrounge from anywhere possible. Last week, Saudi Crown Prince Mohammed bin Salman visited Cairo as part of a trip that also included Jordan and Turkey. The crown prince signed a series of cooperation agreements, including one with a pledge to invest $7.5 billion.

Egyptian vendors displaying their wares at the new fish market in Port Said last month.Credit: Amr Abdallah Dalsh/Reuters

The details of the investments aren’t yet known, but this is certainly vital aid for Egypt, which is also expecting generous investments from Qatar. The Qatari ruler also made a “historic” visit to Egypt and was very warmly received by Sissi.

The rift between Egypt and Qatar formed in 2017 when Saudi Arabia, the United Arab Emirates and Egypt imposed an economic blockade and made its removal contingent on Qatar cutting ties with Iran and not intervening in the internal affairs of countries in the region (see: Al Jazeera.) Last year, Qatar’s conflict with its neighbors ended, but Egypt took its time before reconciling with the country that was a leading opponent of Sissi’s regime. When you need money, policy can be bent too.

The sums that Egypt will receive from the Gulf states are far from enough, particularly when privatization, including of companies controlled by the army, is proceeding at a snail’s pace. Egypt has also committed to shrink government payrolls, which devour 13 percent of the budget, and cut back on subsidies, which account for another 12 percent.

These two areas will require more and more money, as will the plans to hire tens of thousands more teachers and medical workers. Then there’s the bleak forecast for the tourism industry – the sector had shown signs of life but will be hard hit this year as Ukrainians and Russians stay away; they’re two of Egypt’s most important markets.

Despite all these urgent needs, Egypt still puts up legal barriers that slow the entry of foreign investors. This week, for example, parliament discussed an amendment to the competition laws that would prohibit economic concentration and the forming of monopolies.

Ostensibly this bill is supposed to meet the International Monetary Fund’s demand that Egypt buoy the private sector. But the new version of the bill also contains the caveat that concentration or a monopoly will be permitted if it serves national security interests, or if its existence will bolster the Egyptian economy more than its cancellation.

So even under the new bill, the biggest monopoly, the Egyptian army, can keep enjoying its preferred status and block competition. When the president is dependent on the loyalty of the army and the army acts like an independent state, foreign investors will have to wait.

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