How are Egypt’s economic difficulties shaping its foreign relations and attitude to private investment? As the UN Cop27 climate conference concluded in Sharm El-Sheikh, Robert Springborg, visiting professor in the Department of War Studies at King’s College London, shared his views on its probable impact on the host country and the longer-term prospects for Egypt’s economy with African Business.
African Business: In the current context of the economic crisis, what were the benefits of Cop27 for Egypt?
Robert Springborg: The benefits gained are primarily for the regime – only secondarily for citizens, a substantial number of whom were detained prior to Cop27 lest they protest against it or against the regime. Holding the event in Sharm El-Sheikh manifested the support of the United Nations, and hence of world powers, for President Sisi at a time when his leadership is increasingly being called into question by Egyptians suffering from his economic mismanagement compounded by global economic difficulties.
Cop27 also provided direct benefits in the form of pledges, including from President Biden of the US, to give Egypt financial support for the transition to green energy. Finally, the photo-ops provided to Sharm El-Sheikh have served to promote tourism to it and to Egypt more generally.
Considering that Egypt depended on Russia and Ukraine for about 80% of its imported wheat, how is the country dealing with the shortage?
Egypt has diversified its wheat purchases over the past several months, to include India and France among other suppliers. But it has had to pay more as prices in general have risen.
The government stepped up its direct requisition of locally grown wheat, thus crowding private purchasers out of that market and reducing the private production of bread and products, such as pasta, whether for the local market or for export. It also introduced a letter-of-credit system that requires foreign currency payment in advance, which effectively stopped private imports of a wide range of goods, including wheat.
The Egyptian public sector’s dominant role in the economy has been criticised. What are the signs of a shift towards the private sector?
The government declared in the early autumn a state ownership policy, which endorses privatisation within a framework that divides the economy into three sectors: public, private and mixed. The stated target is for some two-thirds of the economy to be in private hands at the end of a transition period.
The present exact proportion between public and private ownership is not publicly known. The government and the president have provided widely varying figures. Sisi at one stage declared that the private sector already controls two-thirds of the economy. Thus far the primary privatisation has been of some government-owned shares in leading companies, such as the Commercial International Bank, Abu Qir Fertilizers and some cement, shipping and port management companies.
The government has stated that privatisation scheduled for some major military-owned companies, such as the Siwa Water Company, has been postponed due to the depressed state of the Cairo Stock Exchange. Ultimately the government is seeking to obtain foreign currency from these “privatisations” and has little if any intent to relax its control over the economy – which is exercised only in part by ownership. The state ownership policy was necessitated by the government’s approach to the IMF for funding.
Despite having secured a $3bn IMF loan package, the country has $6bn of external debt maturing next year and $9bn in 2024. Is Egypt at risk of debt default?
Egypt needs some $50bn between now and the end of 2023 to pay interest and principal on outstanding loans. In the past several years it has relied for foreign exchange primarily on purchases of sovereign debt by foreign financial interests.
After $20bn was withdrawn in the wake of Russia’s invasion of Ukraine, the relatively small loan provided by the IMF, combined with devaluation of the currency and a mounting trade deficit, left the prospects for a new inflow of foreign private funds bleak. So Egypt has to depend on its “friends” to bail it out. Key among these are the United Arab Emirates (UAE), Saudi Arabia, Qatar, and Kuwait – along with the regional development banks.
But even with support from those “friends” the economic situation will remain dire for some years to come. So Cop27 was of great importance as it signalled ongoing support for Egypt from the world’s major players, including the EU, US, China, and Russia, none of which want Egypt to default.
The Egyptian army plays an important role in the economy. In the current economic context, can we expect the sell-off of military companies in the near future?
Like any conglomerate, the Egyptian military can benefit from buying and selling member companies. And like other Egyptian economic actors, the military needs foreign currency.
It can be anticipated, therefore, that ultimately it will sell some of its less strategic companies, such as those that produce bottled water or sell petrol to motorists, through IPOs or direct deals with purchasers, such as the Egyptian or Gulf sovereign wealth funds.
These companies are in any case in competition with private suppliers of the same commodities and do not enjoy “rents” provided through the military’s favoured status with the government. They are, in short, not of great value to the military, compared for example to its fertiliser, cement and other industrial companies that benefit from favoured access to gas, minerals, and land.
Military companies that benefit from rents and are therefore comparatively profitable are less likely to be sold entirely. Portions of them might be sold – most likely to foreign interests that would provide side benefits to the military through shared ownership, for example by providing favoured access into Gulf markets. But even if a substantial share of military-owned companies is sold, the military serves as a gatekeeper to government, so its key role in the economy in determining who benefits from governmental connections and resources, will not be changed.
To find a way out of the economic crisis, Egypt has resorted to rapprochement with Qatar. Can the current economic crisis soften President Abdel Fatah al-Sisi’s authoritarian regime?
Rapprochement with Qatar signifies an improved relationship between two authoritarian regimes, neither of which views this as a domestic political or economic opening. Rather they see it as a means to consolidate their respective interests: Qatar vis-a-vis its Gulf competitors; Egypt to obtain foreign currency and thereby reduce its dependence on the UAE and Saudi Arabia.
The economic crisis is forcing the Sisi regime to spout the rhetoric of international financial institutions, such as privatisation, currency floatation, fiscal austerity, and the like. It is indeed taking some steps to implement these economic reforms.
Presumably it assumes that if those measures result in popular backlashes, as they did in 1977, then pressure for economic reform from the IMF, World Bank, and bilateral donors will be lessened. In this perspective Cairo is in a win-win situation, gaining resources from external donors whether reforms succeed or stir up strong negative reactions.
But what the regime cannot do is relax repression, lest the popular dissatisfaction with economic austerity fuel organised opposition. Some demonstrations are one thing, but allowing opposition a sustained voice and political space in which to organise is another. Economic liberalisation, therefore, will not be accompanied with the political equivalent – quite the opposite in fact.