Country FilesNorthEgypt Country Profile 2015: The strongman vs the economy


Egypt Country Profile 2015: The strongman vs the economy

By The Africa Report

altThe government has crushed the Muslim Brotherhood of former President Mohamed Morsi, and President Abdel Fattah al-Sisi remains firmly entrenched in power.

The legislative elections planned for November 2014 were one of the last steps in Sisi's political transition, meaning that the government will now focus on issues like turning the economy around and maintaining its capacity for repression. With ambitious master plans for housing and tourism, problems like the lack of electricity and high cost of living threaten to undermine the government.

Egypt experienced its worst blackout in recent history when citizens woke up on 4 September to a nationwide power outage that lasted several hours and, in some places, was accompanied by a water cut.

altThe events drowned out talk of political alliances ahead of the parliamentary elections, which did not have a date when The Africa Report went to press and could be delayed.

Instead, the focus shifted from the political fervour of the last three years after President Hosni Mubarak's ouster and the accompanying bouts of turmoil to the country's long-neglected economic challenges.

Fuel subsidy cuts

The post-revolutionary power vacuum has been filled on the political level, yet what concerns citizens most nowadays is the lack of electrical power and the impact of 2014's subsidy cuts on fuel.

In one of his first moves after becoming president in June 2014, Sisi sent back a previously approved budget for the new fiscal year and tasked the cabinet with cutting the deficit down to 10% of gross domestic product, which they made happen with a package of tax reforms and subsidy cuts on fuel. That raised prices on some fuel sources by as much as 78%.

The price rise could attract more oil and gas exploration, but Egypt's gas needs are set to be met by Israel after the two sides agreed in principle to a supply deal in late 2014.

The government's economic reforms have brought it closer to establishing a programme with the International Monetary Fund (IMF). The tax reforms have yet to be implemented, but they are designed to raise revenue.

The finance ministry announced in late 2014 that it could go to the international markets to raise up to $1.5bn in 2015 before sitting down to discuss loans from the IMF.

Currently, the government is in the throes of planning a huge project to develop the Suez Canal corridor, an ambitious bid to drive a direly needed economic recovery.

Economic growth is due to be back on a pre-crisis level in 2015, but inflation is set to remain in the double digits.

The government is pitching a series of more than a dozen major projects worth more than $100bn to international investors, but few of them are likely to progress at the same time.

Pledges from the UAE

The military maintains a large influence over the economy through its control of companies in many sectors.

The military is donating land to United Arab Emirates (UAE)-based contractor Arabtec for a mega project to build $40bn in housing and infrastructure in Alexandria, Cairo and Luxor.

Construction is set to begin in 2015.

With instability in Libya and an Islamist government in Sudan, some Gulf countries are continuing their support for the Egyptian government and its anti-Islamist policies. The UAE pledged an additional package of $10bn to the Cairo government in late 2014.

Many businessmen who grew empires under Mubarak still face criminal charges in Egypt. The courts sentenced Hussein Salem in absentia to 10 years in prison in September 2014 for wasting government funds and other crimes. Others are still circumspect.

In June, construction baron Samih Sawiris said that he would not invest in Egypt due to concerns about political instability and the management of the legal system.

Another member of the Sawiris clan involved in construction, Nassef Sawiris, faces prison over failure to make payments in a tax dispute with the government.

Although there is more stability now than in recent years, the political sphere is narrowing and there is less tolerance for any kind of opposition.

More than a year since Brotherhood-affiliated Morsi was removed from office by the army after mass protests against him, the crackdown on members of the group continues, with its assets frozen and many of its affiliates behind bars pending a broad range of charges.

Consistently met with violent confrontations with security forces, the group is much less capable now of mobilising any kind of street movement, as evidenced by the negligible action taken on the anniversary of the dispersal of the Rabaa Al-Adawiya sit-in.

The government has promised to follow a policy of reconciliation but that is not happening. The political space is thus left open only to the weak and fragmented body of political forces that have scrambled and failed to form a viable alternative to the stale ruling elite.

In this framework, the activists and rights defenders who helped spark the 25 January 2011 uprising are not only left on the periphery of the political sphere, but some of them have landed in jail as a result of a protest law that many rights organisations have dubbed draconian.

The space for expression and liberties is tightening, and with it comes less tolerance for criticising state-imposed policies. Several detained activists have launched hunger strikes to demand their release pending ongoing and protracted trials.

Widespread censorship

Perhaps the case most widely perceived as politicised is that of the three Al Jazeera journalists sentenced in June 2014 to between seven and 10 years in prison on charges of aiding terrorists and spreading false news.

In light of this case, media freedoms have collapsed and concerns are growing over the case's far-reaching impact on the media's ability to operate safely and carry out its role.

Another law in the pipeline is set to regulate the work of non-governmental organisations.

altScores of international human rights organisations – including Amnesty International and Human Rights Watch – have warned that it could spell the end of independent civil society in Egypt.

The increasingly stifling atmosphere is both overshadowed and justified by a state-described 'war on terror' targeting the growing number of groups attacking the military and police since Morsi's ouster, which culminated in the declaration of a three-month state of emergency in October in the Sinai Peninsula after 31 police officers were killed in a series of attacks there.

The regime itself is still in flux and it is not yet clear if it will be able to meet popular demands and the interests of big business.

Unlike under Mubarak, who relied on the support of a massive network of influence cemented by his National Democratic Party, Sisi does not have a similar institution that can mobilise behind his policies.

However, a number of retired generals announced plans in late 2014 to provide Sisi, himself a retired senior military official, with the support he needs in parliament. They include General Hossam Khairallah, General Ahmed Shafiq and Major Gen. Murad Muwafi.

In late 2014, it was not clear if Islamist parties like Al-Nour would be banned from running in the elections due to a clause in the new constitution that forbids the formation of parties based on religion.

During the post-Mubarak transition, none of the non-Islamist political parties have been able to influence national political debates, so it is unclear which ones will perform well in the parliamentary polls.

A group of 35 parties formed the National Salvation Front to support Morsi's overthrow but it has not coalesced into a united group since then. While he does not yet have a political machine behind him, Sisi enjoys the support of the majority of the population.

Digging Deeper for the Suez Canal 

President Abdel Fattah al-Sisi's main economic project is improving the suez Canal and turning it into a hub for industrialists and logistics companies.

It has been in the works for several years and was an endeavour that deposed President Mohamed Morsi boasted about during his brief tenure in office.

The first phase will include a new 35km waterway, and will deepen and extend the existing canal by 37km to allow two-way traffic and ease bottlenecks.

The project should increase annual revenue from the canal to $13.5bn, up from $5.3bn in 2013/2014.

Six international firms were awarded contracts for the dredging work in October. In early september 2014, the government finalised the financing mechanism to be used to fund the estimated costs of E£60bn ($8.4bn).

The Suez Canal Authority is issuing investment certificates that can be purchased by Egyptian citizens and entities through the four main public banks.

The five-year certificates are guaranteed by the finance ministry and carry a 12% interest rate. Non-tradable certificates are denominated in Egyptian pounds.

Central bank governor Hisham Ramez reported that banks sold E£61bn worth of certificates in just a few weeks in September.

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