No Challenges, No Change?
On April 2 2018, following months of intimidation, a fierce media crackdown and rounds of arrests, the President of Egypt, Abdel Fattah Al Sisi, was re-elected. He secured 97 percent of the vote, in the absence of any credible competition. With predictable irony, writes KATE BENN, Al Sisi’s sole challenger, Mousa Mostafa Mousa, supported the incumbent’s campaign until the day before the close of nominations, when he announced his own candidacy. On social media, the election was described as a ‘circus’ and Egyptians widely mocked Mousa’s campaign and his own Ghad party’s endorsement of Al Sisi. Despite the assurance of re-election, the real prize at stake for Al Sisi was a large turnout to lend legitimacy to the vote. At just over 41 percent, however, turnout was a stark indictment of public apathy towards Al Sisi and his policies.
No motivation for change
With no plausible political alternative to the Al Sisi regime, there is no clear indication of how change in Egypt could arise. The real question now is how long Al Sisi will remain in power. Under current laws, Al Sisi’s second four-year term will be his last, but just as President Vladimir Putin of Russia and China’s Xi Jinping have circumvented electoral term limits, Al Sisi is expected to attempt the same. However, in the absence of any clear succession planning, intra-elite competition and mistrust is increasing in Al Sisi’s inner circle. Prior to April’s election, two retired generals, Sami Anan and Ahmed Shafiq, briefly attempted to run for the presidency, reflecting a ripple of discontentment in the military and potential indication of challenges to come in Al Sisi’s second term.
Internationally, Egypt is perceived as a linchpin of security in an unstable region. US President Donald Trump’s rhetoric towards Al Sisi has been positive and the UK Prime Minister, Theresa May, recently congratulated Al Sisi on his re-election. Egypt’s policies on curbing migration and its fight against an Islamic State insurgency in northern Sinai will remain justifications for ongoing US and European support.
Egypt’s relations with Saudi Arabia and the UAE have also grown under Al Sisi’s regime. The countries’ cooperation is based on containment of the Muslim Brotherhood and its regional allies, Qatar and Turkey, as well as backing a Sunni-led bloc, spearheaded by Saudi Arabia against Iran. However, recent political developments in Egypt have put Saudi Arabia on edge; against Saudi expectations, Egypt opted to support the Assad regime in Syria and also refused to take on a greater role in the war in Yemen. Whilst indicative of Egypt’s frustration at Saudi regional hegemony, the country’s dependence on the Gulf States, which have injected some USD 20 billion in the Egyptian economy since 2013, principally in large-scale projects, means it is unlikely to jeopardise these relationships during Al Sisi’s next four-year tenure.
Economic reform - is it working?
In his second term, Al Sisi will remain focused on the acceleration of economic growth and the implementation of large projects under military supervision. In the wake of the 2011 uprising, which ousted former President Hosni Mubarak, investors fled and tourist figures dried up. Neither the Supreme Council of the Armed Forces, which ruled Egypt from the fall of Mubarak until 2012, nor the subsequent regime of President Mohammed Morsi, introduced serious measures to revive the economy. Consequently, Al Sisi inherited the economic turmoil that characterized the post-2011 period.
Al Sisi’s government deserves some credit for its commitment to economic reform; in November 2016, Egypt signed a USD 12 billion IMF loan agreement underpinned by tax increases and curbs on subsidies to encourage foreign investment. This was good news for bond investors overseas; the yield on five-year government bonds stands at 15 percent, a high in emerging markets. Foreign exchange reserves have been rebuilt and stand at USD 38 billion, which is driving foreign investor confidence, alongside political stability. However, in the face of anticipated subsidy cuts in June and July this year, these macro improvements do not reflect the living standards of ordinary Egyptians. A high population growth rate will also make it difficult for the government to develop social safety nets and adequate employment and education provisions.
Given high levels of absolute poverty, Egypt has been criticized for pouring investment into financially dubious mega-projects, including expansion of the Suez Canal and the building of a new administrative capital east of Cairo. However, economists and shipping analysts remain unconvinced that there is sufficient traffic and trade to meet the USD 8 billion Suez Canal project’s ambitious revenue targets, set at USD 13.2 billion for 2023. It is also unclear whether Egypt will be able to compete with Dubai and Singapore’s well-established records of efficiency in the trans-shipment industry. In 2015, Al Sisi similarly announced his grandiose plan for the new ultramodern capital of Egypt. The project has been mired in investor hesitancy and speculation that the new city will only be inhabited by Egypt’s elite. Al Sisi’s regime is currently too focused on making good use of these new multibillion-dollar investments as propaganda tools, rather than effective ways of reviving the Egyptian economy.
To this end, the private sector must become the main driver of economic development in Al Sisi’s second presidential term. The government needs to prioritise transparency of state-owned enterprises, reducing corruption, improving access to land, and increasing young people’s entry to the labour market. However, the Egyptian military is expected to maintain its sprawling and largely opaque business portfolio, which ranges from infrastructure development to pasta production. Details of Egypt’s defence budget, estimated to be around USD 4.4 billion, are a well-guarded secret. Although the government maintains that the military is responsible for less than 2% of Egypt’s GDP, other estimates suggest that this figure is as high as 30-40 percent; at the very least, the military’s grip on the economy has expanded and diversified since Al Sisi’s first election in 2014. Although Al Sisi has acknowledged the importance of the private sector in speeches, his policies have thus far favoured state involvement in the economy. Any investment in the country, or use of a local partner, will require due diligence support to understand the hidden extent of state involvement in target companies.
Guardians or stability?
Security and terrorism threats will remain core challenges in Sisi’s second term. One crucial aspect of Sisi’s security policy is his ‘Comprehensive Operation Sinai 2018’, a three-month military assault on a five-year long Islamic state insurgency in northern Sinai. Hundreds of Egyptians have been killed in a series of terrorist attacks in the Sinai since 2016, with the worst single atrocity killing 305 people. Three weeks after the start of Operation Sinai, the operation was extended indefinitely, undermining Al Sisi’s claim to have stabilised Egypt.
While Egypt’s macroeconomic environment is likely to stabilise over the coming year, and stability is attracting some foreign investment, the Egyptian regime’s record of financial mismanagement, endemic corruption, IMF-mandated austerity, high absolute poverty and unemployment, are not a guarantor of future stability. The underlying conditions for another uprising remain and Al Sisi has expressed little indication that he plans to change the narrative.