By Abdelrahman Youssef
Five years after the 2011 revolution, Egypt’s economy remains stalled and far from recovery, concluded a report issued by the Rafik Hariri Center for the Middle East in Washington DC on the economic downturn in Egypt after the 2011 uprising.
The report, authored by senior fellows Mohsin Khan and Elisa Miller, reviewed the economic reform programmes that were launched prior to the 2011 revolution, as well as the policies adopted by the post-revolution governments. It signaled that successive Egyptian governments struggled to develop a vision of a new economic model for Egypt, where these governments implemented populist policies to meet the urgent needs of citizens.
The report said that a number of reforms that were carried out in the middle of 2000s led to an increased growth rate in Egypt, but did not limit the soaring unemployment, nor did they provide increased economic opportunities to a large segment of Egyptians. Furthermore, it noted that in 2010 major structural flaws remained unaddressed, including unemployment, capitalism based on nepotism, lack of infrastructure, inefficient bureaucracy and large disparities in wealth and income among citizens.
The report said that instead of facing major economic challenges in Egypt, post-revolution governments focused on solving political problems facing the state, while the economy continued to decline, where growth rate remained low with high unemployment.
The report warned that Egypt may deplete its foreign exchange reserves if its Gulf allies refrain from supporting it.
The report also touched on what it called the limited positive economic developments, which followed the appointment of a transitional government led by former interim president Adly Mansour in August 2013, saying that they resulted from consequence of political changes, rather than following specific economic measures.
Even though President Abdel Fattah Al-Sisi pledged, when he assumed office in June 2014, to revitalise the economy and put it on a path towards high and sustained growth rates, two years following his election, economic challenges for Egypt remain unaddressed, the report read.
In the same context, the report touched upon Al-Sisi’s government stating that the economy’s recovery was their top priority. However, five years following the 2011 uprising, the Egyptian economy is still in the same bad situation, with worse circumstance taking place in 2016.
In this sense, the report noted that Egyptian governments need to address the economic problems of Egyptians—which were the reason fueling the outbreak of the 25 January Revolution—through focusing on establishing more power plants in Egypt, improving public finances, attracting foreign investment, transitioning to a flexible exchange rate system, and expanding the private sector.
The report acknowledged that an economic transformation process that would keep pace with the aspirations and hopes of the Egyptian people would be difficult and time consuming.
The report concluded with a set of recommendations for the government to follow in order to improve the economic situation. These include:
Pursuing macroeconomic stability. This is essential with or without an IMF programme, and will involve policy measures to improve public finances and reduce government debt. This implies continuing with reforms of the tax and subsidy systems. Further fiscal stimulus packages may also be needed in 2016 and beyond to boost growth.
Ensuring sufficient external financing. This financing could be used to ease the energy crisis and support the ambitious infrastructure megaprojects that Al-Sisi has announced, such as the Suez Canal project, the New Administrative Capital, the building of 1 million houses around greater Cairo, and the construction and rehabilitation of roads and a variety of energy plants, including renewable energy projects.
Implementing key reforms to make Egypt investor friendly. While government-led infrastructure projects are necessary, private domestic and foreign investments are going to be essential for the future growth of Egypt. For this to happen the government must streamline business and investment regulations. Potential investors have identified key reforms needed in the following areas: protecting intellectual property rights to generate innovations, revising labour laws and regulations to bring greater flexibility into the labour market, and introducing a modern bankruptcy law along with a clear and transparent dispute settlement mechanism.
Changing the monetary policy regime. Egypt has to reduce foreign exchange pressures by letting the Egyptian pound adjust to market forces. Eschewing fears of a floating exchange rate system and shifting the CBE’s focus to inflation control rather than the stability of the Egyptian pound would go a long way towards reducing dependency on foreign financial assistance.
Implementing the 2016 economic plan. The government announced its long-term economic plan in March 2016, following the election of a parliament, a cabinet reshuffle, and the formation of a new economic team. The plan targets 5-6% GDP growth and a budget deficit below 10% by the end of fiscal year 2017. The plan also calls for the adoption of a 10% VAT and the sale of stakes in government companies.
“If the Egyptian government commits to this agenda and follows through with it, the international community will undoubtedly be ready to provide different types of financial and technical support to the country. As Egypt goes, so goes the Middle East. It has been the leader in MENA and what it does on the economic front—going all the way back to the days of former presidents Gamal Abdel Nasser and Anwar Sadat—is followed by other countries in the region. This is well understood and appreciated by the Gulf Arab countries, the United States, Europe, and the international financial and development institutions. It is thus in everyone’s interest that Egypt is successful in reviving the economy, and soon,” the report concluded.