Chronicle of the Middle East and North Africa

Economic Challenges Under President al-Sisi

Luz Photo Agency / HH

Since the 2011 revolution in Egypt, the economy of the most populous Arab state has been in turmoil. The country depends heavily on tourism for foreign currency income, and a third of that was lost during 2011 alone. Additionally, many foreign investors pulled out of the market amid fears over the political uncertainty that showed no sign of resolution.

The economic woes of poor people were one of the main factors that drove people into the streets against Mohamed Morsi, the first freely elected president of Egypt, after less than a year in office. This put tremendous pressure on his successor, Abdel Fattah al-Sisi—the ex-defense minister who led a popularly backed coup that overthrew the president in 2013—to alleviate quickly some of the problems people were facing.

Al-Sisi’s economic plans were never clear, thanks to contradictory statements that he often made in speeches, public appearances, and leaked recordings. Some of them were strongly in support of a free market, as when he suggested that people receiving, as well as placing, mobile phone calls should be made to pay, while others had a more socialist bent, as when he called for reversing the privatization begun during the Mubarak era.

During his campaign for the presidency, al-Sisi was often sharply criticized by opponents and activists for failing to present a presidential program with a clear economic plan. When asked about it on various TV appearances while running for office, he always avoided giving clear answers, which raised concerns.

Near the end of the presidential race, his campaign finally released a summary program online that suggested, as possible solutions, raising taxes and reallocating subsidies to serve those most in need, but without providing details of how he planned to achieve that.

However, the lack of a clear vision, and some statements made by al-Sisi—such as his suggestion that people should save money by walking or biking to work or university in order to save money for the country—sparked ridicule on social media because of the extremely limited solutions they offered. Other comments, such as those urging young people to adopt tough austerity measures “to help and build Egypt” frustrated younger people who were already suffering from high unemployment and a rapidly declining quality of life.

A year after the overthrow of Morsi, the only thing that was keeping Egypt’s economy afloat was the generous donations, totaling US $12 billion, by rich Gulf countries who supported the coup, but these donations eventually ceased. The governments in these countries demanded assurances from al-Sisi that, after becoming president, he would work to improve the economy, in return for their continuing support.

President al-Sisi

While running for the presidency, al-Sisi promised he would not raise food and fuel prices, promising to increase income and “make people wealthier” before cutting subsidies, but he reneged on this promise in a few months.

After winning the presidency, al-Sisi faced the challenge of trying to fulfill the demands of the millions of disenfranchised young people who have suffered since the 2011 revolution. When his cabinet tried to pass an annual budget with a 12 percent deficit, he refused to approve it; this led to a series of unpopular decisions aimed at bringing the budget under control.

These measures included removing some of the subsidies on fuel, which raised the price of gasoline and diesel by up to 78 percent. The government announced plans to increase fuel prices regularly over the next few years, with the intention of removing all fuel subsidies within five years.

Electricity and gas prices also increased sharply, and new sales taxes were introduced, on alcohol and cigarettes.  The fuel hike sent ripples through the economy, affecting everything from food to transportation, causing the greatest strain on lower-income families. While the government promised to keep prices under control, it has been largely unable to do so.

Most economists argued that these measures were necessary to keep the national deficit to a minimum, but some condemned them as affecting poor people more than the rich.

In an ad hoc TV appearance, al-Sisi promised to donate half his wealth and half his salary to a fund to support Egypt. He then called on rich businessmen to do the same and asked Egyptians to tighten their belts and adopt austerity measures to decrease government spending.

Reform needed

Under pressure from the United Arab Emirates, which was concerned about how the Egyptian leadership would use the aid it receives from donors for sustainable economic growth, the government turned to Western consultants to try to create an economic plan that would stave off the damage done since 2011.

These experts suggested that the country needs at least US $60 billion in investment if it is to reach a healthy 5 percent growth in GDP by 2018 and another US $60 billion to bolster foreign-currency reserves, which had dwindled to nearly half what was maintained before the 2011 revolution.

Several economists say the unpopular decision to remove some of the subsidies was one of the recommendations of the consultants. The Egypt government hopes this will help restart talks with the International Monetary Fund (IMF), which stalled earlier, during Morsi’s presidency.

This could increase investor confidence, after years of political turmoil and uncertain economic strategies following the removal of Mubarak. Egyptian billionaire businessman Samih Sawaris said, however, that he would not invest in his country at this time, citing political oppression, the failure of the government to make bold economic decisions, and a legal system that does not protect investors.

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