Analysis

A Pat on the Back From Trump Won't Save Egypt's Economy

The country's newfound loans may put Abdel-Fattah al-Sissi in danger, ambitious new legislation and warmer relations with the U.S. notwithstanding

President Donald Trump greets Egyptian President Abdel-Fattah al-Sissi at the White House, April 3, 2017.
Andrew Harnik/AP

Egyptian President Abdel-Fattah al-Sissi’s cordial reception in Washington this week set off warm ripples in the Egyptian media. The beaming smiles, supportive declarations and a Trumpian pat on the back all sound like the rustle of a new leaf turning in relations between the two countries.

Former U.S. President Barack Obama had declined to give his blessing to the general when he grabbed power in 2013, and insisted that Egypt pay attention to human rights. Now, after all that sourness and mutual disgust, a fresh breeze has stirred – one that Egypt badly needs.

But important as they are, the praise and encouragement are hardly enough. Sissi needs much more. Egypt receives $1.5 billion in annual assistance from Washington, too little in view of its huge economic needs and almost insulting compared to the some $15 billion it has received over the past three years from Saudi Arabia and the Gulf states.

Closer ties with the United States will be helpful to Egypt when it asks for loans from international institutions. It has already been approved for a $12 billion loan from the International Monetary Fund, and the World Bank has also agreed to give it a loan. But these loans come with a high price tag for Egyptian society and perhaps even for the regime’s stability. For instance, the IMF insists that Egypt considerably cut its food and fuel subsidies – a move similar to setting off a time bomb.

Sissi has proved he can cut fuel subsidies, a move he avoided for years for fear of clashes and public demonstrations like the ones that took place in the 1970s. He has doubled the fare for the metro, used by millions of Cairo residents, introduced a flexible dollar exchange rate and halved the Egyptian pound's value as compared to the dollar. He made VAT part of the tax system and plans to impose new taxes in order to fill the state coffers.

But the expense cuts cannot replace the need for foreign investment alongside infrastructure development for it and legislation to attract foreign investors to the country.

On the one hand, Egypt is working to fulfill the demands of international financing institutions. On the other hand, it must calm the public, whose anger is simmering over the dramatic price hikes over the last six months. The prices of some products soared by 100 percent compared to the average 30 to 50 percent increase, while nominal wages remained the same and purchasing power plunged due to the flexible dollar rate. All this, and mainly the dollar shortage, led to a deep setback in production capacity and the ability to compete with imported products.

People buy bread at a bakery in Cairo, Egypt, March 9, 2017.
MOHAMED ABD EL GHANY/REUTERS

More than half of the Egyptian population lives below the poverty line, set at $1.90 a day. Some 70 million of the country's 95 million citizens regularly depend on subsidized basic products, which they buy with smart cards in designated shops.

For these needy classes, any price jump – even by a few percent – means being pushed deeper into poverty. This week, the government decided to approve a comprehensive state health insurance bill, expected to help some 30 million people who cannot afford medical treatment. According to the proposal, which is to be passed by the Parliament soon, anyone recognized as needy will receive treatment and medicine at the state’s expense.

At first glance, this is a major move to moderate the effect of rising prices and contribute to people’s life expectancy, but the draft bill lacks actuarial calculations. It’s not clear how much it will cost the state and most importantly, it is expected to be applied in stages over 10 to 12 years. Also, the draft doesn’t make it clear who will be recognized as needy, what free treatments he or she will be entitled to and for how long.

The Egyptian media's wide positive coverage of the bill has meanwhile helped to somewhat appease the public fuming over the price hikes. Egypt is also working on legislation intended to spur investment, which would offer tax exemptions and land for building factories. It is introducing amendments that could simplify the bureaucratic hassle investors are currently subjected to.

All these systems need a thorough shake-up after generations of bureaucratic coma. They require an active government and ministers who don’t make do with declarations and cutting ribbons. Even Trump’s goodwill cannot keep the Egyptian official, who must work three shifts a day to survive, at his desk.