Egypt, with one of the largest economies in Africa, also has one of the largest populations at nearly 100 million. The social and economic hit it has taken from the coronavirus is beginning to become more apparent. In the first part of our series on the impact of COVID-19 on Egypt, we look to see if its banks are strong enough to weather the pandemic slump. The challenge is to increase their lending to the private sector, and especially small business.
This is part 3 of a series.
Egypt has spent most of the last 40 years under various states of emergency, usually based on the need to combat terrorism. Under President Abdel Fattah el-Sisi, the army has become an autonomous actor that can shape markets, policy and investment strategy. The COVID-19 pandemic has given the military new justification to extend its control over economic life.
Military-owned companies are among those receiving disproportionate funding from the government as a result of COVID-19, says Callee Davis, an economist specialising in Egypt at NKC African Economics in South Africa. She gives the example of military affiliates being used to produce protective gear during the pandemic.
- “This will burden the taxpayer in the long run”, as businesses under the control of the Egyptian armed forces are exempt from various state taxes, she says.
Soldiers, at best, make “good engineers, but bad economists,” according to research in 2019 from Yezid Sayigh, a senior fellow at the Carnegie Middle East Center in Beirut. The surge in public infrastructure and housing under military responsibility “is generating significant amounts of dead capital and stranded assets, diverting investment and resources from other economic sectors,” Sayigh argues.
- Egypt’s military is involved in such humdrum activities as producing basic consumer goods like food and household appliances, manufacturing industrial chemicals and importing commodities.
- Retired officers take up senior public and private sector posts, writes Sayigh.
Some argue that outside perceptions have exceeded the realities on the ground. Outside of the cement sector, the role of the military in the Egyptian economy is often “highly exaggerated,” says Allen Sandeep, director of research at Naaem Holding in Cairo. He does not believe that the military poses any kind of obstacle to post-pandemic economic recovery.
- “The economy is functioning and the policy response has been calculated,” he argues. “We did not over-react” to the pandemic.
- Still, Sandeep says, there has been no audit of the military in the last half century.
The transparency needed for public understanding of the course and consequences of the pandemic has likewise been lacking. In March, a journalist with the British newspaper The Guardian was told to leave Egypt after suggesting, on the basis of research by infectious disease specialists from the University of Toronto, that the number of coronavirus cases was being understated.
Neither is there transparency on the economic impact of the pandemic.
- The government’s announcement of its intention to stick with outdated economic estimates until the effects of the pandemic become clearer is “slightly unrealistic”, argues Davis.
- “The ministry should plan on more realistic revenue figures to account for these various challenges or risk a massive budget blowout.”
Military control will complicate post-pandemic economic recovery. The army’s dominance of the economy “crowds out the private sector, making the business environment complicated and discouraging foreign investment,” says Francois Conradie, senior political analyst at NKC African Economics. “It also impedes growth in the tax base, which is very important as Egypt’s debt stock grows.”
Long-term sustainable growth will require “making the environment more welcoming for private enterprise, but unfortunately we think that the military will maintain its dominance, and in fact extend it thanks to measures taken in response to COVID-19”, says Conradie.
Bottom line: The military may be an effective tool of damage limitation in crisis, but economic recovery after the pandemic will require more freedom for the private sector.
Click here for part 1.
Click here for part 2.
Click here for part 4.
Click here for part 5.
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