Egypt's economy: The challenge for the next president

Egyptian men sit at a cafe near the Misr spinning and weaving factory in Mahala, 120 kms north Cairo, on April 8, 2014. (Photo: AFP-Mahmoud Khaled)

By: Omar Wehbe

Published Wednesday, April 23, 2014

Serious challenges lie ahead for the Egyptian economy. There is a sense of anticipation in the air tainted by pessimism due to the current political situation. According to the last poll conducted by the Egyptian cabinet’s Information and Decision Support Center, 80 percent of citizens do not trust the performance of the government. But what specifically is driving the average Egyptian citizen’s pessimism? And what should economic reforms focus on?

Cairo: Many issues await the next Egyptian president. Security will not be the only pressing issue requiring solutions to bring back a sense of stability to the Egyptian people. Economic stagnation is a more important and more dangerous issue, which signals the possibility of a major disaster if the future government does not find solutions that enable the country to grow.

The next president, Field Marshal Abdel Fattah al-Sisi, is aware of the current economic malaise and he realizes that making promises means that his presidency will face the test of implementing effective reforms. Sisi tried to address the economic situation in advance when he described Egypt’s economic conditions as “very difficult,” pointing out that the problems “can not be solved overnight.”

In addition to these statements, Sisi announced that Egypt needs about 3 - 4 trillion Egyptian pounds (US$ 431 - 575 billion) to solve its ongoing economic and social problems.

Dr. Salaheddine Ibrahim, an economics professor at Cairo University, argued that the agenda of the next president is full of sensitive issues given the deteriorating economic situation in the past three years. In his interview with Al-Akhbar, he pointed specifically to the burden of public debt that has rapidly grown in the last few years and will become, by the end of this year, more than 90 percent of the gross domestic product.

According to the International Monetary Fund’s (IMF) projections, Egypt’s debt will reach, by the end of 2014, 1.81 trillion Egyptian pounds (US$ 260 billion) and will rise to more than 2 trillion Egyptian pounds (US$ 3 billion).

Even more dangerous is that external debt is on the rise. Ibrahim added: “If the situation is not addressed immediately through an electoral economic program, it means we are standing silent as we face an economic catastrophe.”

Researcher at the Faculty of Economics and Political Science at Cairo University, Dr. Salwa Gamil, confirms this data. She says that allocating part of the budget to pay off the debt should be a priority on the forthcoming president’s agenda, especially since the budget deficit is growing.

It is true that the growing Egyptian debt is a serious problem, but the more dangerous challenge lies in the unemployment according to professor of social behavior at Ain Shams University, Dr. Hiba al-Wisal. She points out that the unemployment rate rose from 12.5 percent to 13.2 percent and stresses that curbing the rising unemployment rate is “the real test for the next government.”

Egypt’s economy will grow by 2.2 percent this year, its size exceeding US$ 286 billion and this rate is expected to double next year and the size of the Egyptian economy is expected to exceed US$ 328 billion. But questions remain about the nature of this growth and if it can trickle down to the average Egyptian citizen.

Dr. Wisal told Al-Akhbar: “If the government fails to employ the youth, restart factories and restructure prices to fit the low local wages, we will witness a social revolution more vicious than the previous two revolutions.”

This reminds us of the demands of the first revolution that broke out in January 2011. The protesters called for social justice, bread and freedom, in other words, “reformulating a social contract between the citizens and the government, which the latter has not adhered to yet,” says Dr. Wisal.

According to the latest data from the Central Agency for Public Mobilization and Statistics, the poverty rate rose to 25 percent in light of the alarming increase in prices, the absence of legislative reforms, and the stagnant markets.

“The next president, whether he has a military or a civilian background, has to respond quickly to the needs and demands of Egyptian citizens,” says professor of economics at Benha University, Dr. Salah al-Najjar. In his opinion this can happen by launching projects to accommodate the growing number of unemployed citizens, restoring confidence in private sector investments, and involving investors and labor unions in making economic reforms.

Delving further into social indicators reveals other challenges before the next government. According to researcher Mohammed Mandour, the government might face sanctions if it does not respect housing agreements developed by UNESCO when it develops housing projects in Egypt’s slums.

The government’s plan ignores 404 unsafe areas that contain 210 thousand housing units inhabited by about 853 thousand human beings and they need about 8.5 billion Egyptian pounds to address their economic situation.

Turning to general indicators that are of interest to the private sector, specifically the business environment, professor of international accounting at the American University in Cairo, Mohammed Nur al-Din, argues that the obstacle that threatens Egypt in the future is the ubiquitous corruption. This problem adversely affects the allocation of resources and how they are distributed among various state agencies.

According to data from Transparency International, corruption is on the rise and is driving away investors. This is a dangerous reality in a country that needs investment capital to develop its infrastructure and basic sectors such as education and healthcare.

The next president’s economic reforms must be more ambitious according to feasibility studies professor at Benha University, Dr. Manal Salama. She says: “We should stop turning small investors away from achieving investment returns.” She points out the importance of explaining the demands of the Egyptian people to the international community and implementing a strict set of laws, including in the area of security, in order to restore international confidence so that the tourism industry can recover.

Experts agree that we must focus on the need to improve social welfare programs to target vulnerable groups specifically, while simultaneously address funding needs and foreign commitments. Even though the aid that some Gulf countries gave to Egypt helped the government to somewhat catch its breath, Egypt’s debt to Saudi Arabia and the United Arab Emirates will be a leash around the neck of the next president.

There is the current government’s vision, as expressed by Finance Minister Hani Qadri, who said in an interview with Al-Akhbar: “Many challenges face the Egyptian economy, such as a high inflation rate that exceeds 10 percent.”

But he stresses: “We are working currently on attracting investors to the Egyptian market, in addition to developing a crisis management mindset and approach whereby an effective effort is exerted to achieve economic growth, protection and social justice.”

“Economic indicators are showing the beginning of a recovery. We will not accept external pressure and we do not seek to take loans from the IMF because governmental programs are capable of boosting the economy,” says the finance minister, in reference to the US$ 4.8 billion IMF loan deal that was highly controversial under ousted President Mohammed Mursi.

As for the government’s continued energy subsidies, Qadri says: “Energy subsidies can not continue as they are now for low-income people.” He explains: “To achieve social justice we must deal with the 300 billion Egyptian pounds that go to energy subsidies,” pointing out that the total disbursement for grants, benefits, and subsidy programs in the past decade amounts to one trillion Egyptian pounds ($1.4 billion).

This article is an edited translation from the Arabic Edition.

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