An Ominous Warning
Last autumn, Egyptian President Abdel Fattah el-Sisi addressed a gathering in the New Administrative Capital, a $300 billion project that epitomizes his tenure. He proclaimed that hunger was a necessary sacrifice for progress, urging Egyptians not to prioritize food over development. This unsettling forecast of hunger and deprivation looms over millions of Egyptians in the coming years.
Economic Decline
A decade into Sisi’s presidency, Egypt’s economy teeters on the brink of collapse. The signs are unmistakable. A severe debt crisis chokes the state budget, the economy is predominantly controlled by the military, vast sums are wasted on questionable projects, and key public sector assets are being sold to manage escalating debt. This situation results from the military’s relentless pursuit of power and wealth, regardless of the cost. The consequences will be dire and long-lasting, requiring a herculean effort to overcome.
Rising Poverty
The poverty rate has surged in recent years, a trend likely to continue. By 2022, 33 percent of Egyptians lived in poverty, up from 26 percent in 2012/13. This increase is fueled by policies that transfer the burden of the debt crisis onto the poor and middle classes. The most striking example is the regime’s austerity measures, notably the 300 percent hike in the price of subsidized bread announced in May.
Wealth Transfer
In January, the government also raised prices for basic commodities. These actions are part of a broader strategy to shift wealth from the poor and middle classes to the regime’s elites and creditors. Increased spending on mega-projects, funded by high-interest debt, has expanded the military’s economic influence. The repayment of this debt is facilitated through the appropriation of public resources and a regressive tax system. This cycle of structural poverty is difficult to break. The budget reflects this trend, with the main source of tax revenue being a regressive consumption tax yielding 828 billion Egyptian pounds ($17 billion), while corporate profits tax contributes a mere 239 billion pounds ($5 billion). Notably, 62 percent of budget expenditures are consumed by debt obligations.
Economic Vulnerability
Poverty’s increase will coincide with another structural shift: the peripheralization of the Egyptian economy, making it more susceptible to external shocks and dependent on regime allies. Despite significant spending, the economy’s competitiveness and industrial base have not improved. The industrial sector’s contribution to GDP fell from 40 percent in 2013 to 33 percent in 2022. Egypt’s current account balance remains negative, deteriorating from minus two percent in 2013 to an expected minus six percent in 2024, according to the International Monetary Fund (IMF). This trend is projected to persist until at least 2029.
Ongoing Financial Strain
In the medium term, the pressure on foreign reserves will continue, affecting the pound’s value. The debt crisis, consuming much of the state budget, makes public investments to enhance economic competitiveness unlikely. Even with over $50 billion in recent loans and investments, the financing gap remains at $28.5 billion. This indicates that the Egyptian economy will need ongoing external support to maintain stability.
Gulf Investments and Their Impact
In February, the UAE’s $35 billion investment was crucial in avoiding potential default. However, the regime’s public spending and cronyism continue. The Engineering Authority’s announcement in May to proceed with the South Valley development project, despite similar projects’ limited impact, highlights this issue. Agriculture’s GDP contribution fell from 11.3 percent in 2013 to 11 percent in 2022. Thus, Egypt’s dependence on external capital is likely to grow, increasing vulnerability to external shocks and international financial markets.
Deepening Economic Dependence
Gulf capital’s growing influence in Egypt has severe economic consequences. An Emirati firm acquired a 30 percent stake in Eastern Company, which controls 70 percent of the tobacco market, for $625 million. Additionally, the UAE financed the sale of historic hotels for $800 million. This trend deprives the government of significant public revenue, further straining finances, eroding living standards, weakening the pound, and fueling inflation.
A Grim Outlook
The future of Egypt’s economy appears bleak. Even if the risk of debt default has diminished, the impact of a decade of flawed economic policies remains. The ongoing structural transformation enriches local elites aligned with the new realities, including military and civilian elites. Hisham Talaat Moustafa, a real-estate tycoon with UAE ties, saw his company’s profits jump by 220 percent in the first quarter of 2024. Millions are plunged into poverty while wealth accumulates among a few elites. The economic damage extends beyond the debt crisis.
