Take a walk down history lane and you will find it littered with strongmen who didn’t heed economic alarm bells. “It’s the economy stupid’’ is a phrase coined during Bill Clinton’s successful campaign against George W. Bush and it is one that applies, aptly, to today’s Egypt. High youth unemployment? Check. Currency crisis? Double Check. Rising prices? Triple check. Sinking tourism? Yes sir. A failing Suez Canal? Indeed. Failing monetary policy? Clearly. But are these Egypt’s scariest prospects? Frighteningly no. Currency and banking are a barometer of much more than the economy, indeed during times preceding collapse they are indicators of a regime destroyer: public mistrust. These days trust and the Egyptian government don’t mix.
To navigate the underpinnings of the current quagmire, our eyes must turn Gulf-ward. Those who deconstruct how business is conducted in the region understand two things about those sheikhdoms: oil and political conservatism are in abundance. Once the powder keg of 2011 was exploded by the people, the power brokers of the counter-revolution went to work in Cairo and capitals throughout the Gulf. It stood to reason that if the, so called, “Arab Spring” went unchecked, the royal houses of Kuwait, Saudi Arabia, and the United Arab Emirates would be next. Impede the revolutionary tide they must, they likely thought. After all, this was the very same Egypt that, historically, when sneezing spread its cold region wide. While many fell in love with the romanticism of the successful revolutionary camp, Machiavellian powers conjured a two-step counter-revolution.
Firstly, a power hungry Muslim Brotherhood would be installed into power. Knowing fully well that the Brotherhood was lacking governance experience, after all leading a country isn’t the same as micro socio-economic projects, the plan was to sit and watch the group implode.
With the punishing sun of July 2013 the second part of the plan was ready for implementation. Enter the new pharaoh: Abdel Fattah Al-Sisi. With a mix of incompetence and political naiveté, Morsi’s Brotherhood was ill equipped to stem the tide of Al-Sisi’s militaristic ultra-nationalism. Al-Sisi’s was a currency of the people the west and the Gulf found familiar: surrender some freedoms, gain some security, and muddle economically with the help of a myriad of allies led by the conservative sheikhdoms.
Nine months into the Al-Sisi era, a major economic conference was to prop the former general. Exaggerated planned investment of $138bn over the first 48 hours of the conference gave false hope. Local press, controlled in a fashion not dissimilar to Nasser’s times, bellowed of astounding success and the strongman’s first mistake was believing his own press. ”Egypt needs no less than $200bn to $300bn to have real hope for the 90 million Egyptians to really live,’’ said Al-Sisi at the time. But the mirage of such conferences, much more often than not, leads to far less than promised. Economic dreams are impacted by bureaucratic nightmares in the land of the Nile. What followed proved that promises are one thing and reality another under this latest pharaoh.
‘’Significant impediments to investment exist,’’ stated a 2015-2016 US State Department report on the Egyptian investment climate, despite the fact that Washington has a highly, cynically, positive view of its “Egyptian Trump”. Paranoid narcissist responsible for the jailing and killing of thousands or not, America plays ball with Al-Sisi despite his obvious short comings. Among those weak points is an inability to change an archaic economic environment. “There can be delays of several months for legitimate transfers of foreign exchange to be executed.” Once that wall was circumnavigated, a local labour force, often not up to international standards, is forced upon international investors to the tune of 90%, in general, and 75% in trade free zones, reported the State Department. Despite foreign direct investment being made a paramount priority by the regime, reality continued to bite back. At a time of scarce hard currency due to tourism teetering on terrorism’s cliff and the Suez Canal badly hurt by low oil prices, foreign investment has come to a near halt. Gone were the dreams of those fabled $138bn from the Egypt Economic Development Conference, only to be replaced by the stark reality of foreign direct investment in the first nine months of 2014 and 2015 not exceeding $6bn. These numbers speak of a dearth of international investor confidence—and with good reason.
If you cannot bring a semblance of stability and fair play to the local currency market, how can you hope to capture the trust of investors, international organisations, and the people? Al-Sisi appears to lack fundamental understanding of the potential economic and political damage that a soaring US dollar can do to a mangled Egyptian economy. On the very day he was sworn in as president, 9 June 2014, one dollar could purchase 7.15 Egyptian pounds. Now, fast forward to today only 26 months later, and the power of the local currency has been sliced to nearly half, with the dollar zooming, for the first time ever, beyond the mythical 13 pound mark in Egypt’s flourishing black market. Under Al-Sisi management, the pound was recently called, by Bloomberg news, ‘’one of the worst performing currencies in the world”.
Stop to see it through the eyes of an Egyptian. You have a president paving the way for harsh austerity measures. Furthermore, a Central Bank of Egypt (CBE) governor, Tareq Amer, admitted that Egypt’s fiscal policy vis-a-vis the dollar had been a ‘’grave mistake’’. Then there is the prospect of looking down the barrel of a gun of punishing International Monetary Fund (IMF) policies as a price for desperately needed $12bn in loans. How can you trust? Why should you trust?
Al-Sisi is right in one respect: ‘’the problem, not just now, but over the past 30 or 40 years has been about a bridge of trust’’ between officials and citizenry. But, in his insular bubble of yes-men and women, Al-Sisi doesn’t realise systematic economic failure is undercutting the bare minimum of support on both domestic and foreign fronts, needed for his very survival.
Even as he tries to rescue his flailing regime, the Egyptian leader contradicts himself. In an August speech, he emphasised the need to ‘’increase the size of knowledge needed for the citizen’’ to accept the tough measures that lie ahead. But has Al-Sisi done so? The hallmarks of Al-Sisi’s tenure have been core defining decisions like Tiran and Sanafir, billions spent on a failing canal, and now taking $19bn in loans from the IMF and other sources, without national discussion prior to execution.
In this relationship, the ruler functions as ‘’father knows best’’. But, to the most casual observer, that father knows little of the ABC’s of governance and the necessary conversation with the people on whose good faith he relies on to merely finish his term.
There are a myriad of reasons why the cover of the Economist this week screams, “The ruining of Egypt”, and continues to say ‘’repression and incompetence are stoking the next uprising’’. Al-Sisi is hurting Egyptian pockets and that is acid eating away at his rope of political stability.
Anyone who enjoys Egyptian cuisine will tell you the two constants of the Egyptians’ daily diet are rice and bread. When Sadat tried to remove subsidies from the latter, in 1977, there were Bread Riots. A recent report by the CBE reveals the current ruler is not a keen student of history. Rising an astronomical “47.49% in the first six months of 2016’’ compared to only 4.52% in 2015, rice, for a president who depends on a different kind of rice from the Gulf, may very well be the kind of issue that breaks Al-Sisi’s back. Couple that with a terrifying 40% unemployment rate amongst youth and it is safe to say Al-Sisi hasn’t received the memorandum: “it’s the economy stupid”. Buried within that same report is a telling statistic reflecting the deterioration of Saudi trust in Al-Sisi’s management. As his biggest foreign backer, Saudi Arabia lead all the Gulf donors with $6bn since 2013 when Al-Sisi became the de facto ruler, but, deeply revealingly, not a penny in 2016. They are not the exception either. A recent Cairo sojourn by an Emirati economic advisory group turned sour when faced with an ”ossified bureaucracy and knucklehead leadership’’. Atop this nefarious cake is a poisonous cherry: a 14% inflation rate, which continues to rise.
When talk of national security abounds, Al-Sisi often speaks of external enemies and ‘’evil people’’. More than economic mismanagement, it is public mistrust and anger that continue to bubble up, which may hasten the undoing of Al-Sisi.
He would do well to look in the mirror instead and repeat the words: it’s the economy stupid.
