Egypt is a land of contrasts, between the arid desert and the lush Nile, well preserved monuments and crumbling infrastructure, its youthful population and gerontocratic politicians. Once the leader of the Arab world in cultural, political, and economic fields, the country of over 110 million is now forced to play to the tune of its wealthy backers in the Gulf. Ever since the false hopes of the Arab Spring, the country has struggled to develop its economy and offer an attractive future for its people. With the passing of the presidential elections this December, President Abdel Fattah el-Sisi has secured a third term in office. With the political horizon set, it is timely to examine the challenges facing the often overlooked but crucial nation.
President Sisi was all but guaranteed to extend his mandate for six more years. In the absence of serious opposition candidates that were either intimidated or straight out barred from running, the former general has won both previous elections with over 96% of the vote and this election has ended with a similarly flattering result of 90% of the votes being cast in his favor. The president’s principal worry was not winning the election but stemming a collapse in turnout that would erode his legitimacy. Nonetheless, below the cosmetics of electioneering the real challenge to Sisi’s authority comes from the economic crisis which has been brewing since his capture of power in 2014.
Coming on the heels of the revolutionary instability of the period from the overthrow of Hosni Mobarak’s thirty year reign in 2011 to the military coup against Egypt’s first democratically elected president Mohamed Morsi of the Muslim Brotherhood in 2013, President Sisi had promised stability in exchange for obedience to a population exhausted by years of turmoil. His answer to the persistent problem of development that Egypt has faced since independence from the British Empire, has been debt fueled mega projects.
Among these are a brand new capital city complete with the tallest building in Africa coming at a cost of $58 billion and covering an area seven times larger than Paris intra-muros, an expansion of the Suez Canal, and flashy items such as a carefully choreographed parade for the transfer of mummies through the center of Cairo. These extravagant undertakings that rival those in the oil-rich Gulf countries have turned out to be more vanity projects rather than real investments to increase the productive capacity of the country, generating returns far lower than initially anticipated.
The difference with the Gulf is that Egypt can ill afford to misuse its resources. With 30% of its population living in poverty and a median age of 24, the country desperately needs to create jobs for its younger cohorts. Its education system has been neglected, transport infrastructure is infamous for its spotty safety record, and blackouts are a regular occurrence that the population has to live with through the blistering summer months. This comes on top of the increasing difficulty Egypt is having in feeding its population.
Overpopulation is having a two-fold effect on this problem, firstly by increasing the number of mouths to feed, but also through expanding urban agglomerations occupying arable land. Even though Egypt is a large country by total surface area, only 5% of its land along the Nile is fertile with 95% of its population also living on this narrow strip. Once the breadbasket of the Roman Empire, Egypt now relies on imports for most of its foodstuff, including half of its grain. Bread being a crucial part of the Egyptian diet, wheat is one of its principal imports. In 2021 it imported $4.53 billion of the grain it consumes with its two biggest suppliers being Russia and Ukraine. The escalation of the Russo-Ukrainian conflict in 2022 and the following skyrocketing of international grain prices have dealt a heavy blow to the already high current account deficit.
This external shock came just as Egypt was recovering from the effects of the COVID-19 Pandemic, which had damaged the country’s crucial tourism sector. The industry accounts for 15% of its economy and employs a tenth of the workforce. More importantly, tourism is one of the few reliable sources of hard currency that the country needs for necessary imports, most importantly the aforementioned foodstuffs. Bread subsidies already account for 2.9% of the annual budget and are set to increase as climate change and global instability continue to suppress agricultural production.
Nonetheless, the amount budgeted for subsidies pales in comparison to the cost of debt servicing to the Egyptian state. The state now uses half of its revenue to make interest payments on its mountain of debt nearing 100% of GDP. The national debt, which was at $40 billion when President Sisi took power now stands at $165 billion. Combined with the global increase in interest rates, this has led to a cascade of problems from a shortage of foreign currency delaying imports, thus further damaging the economy with the Egyptian Pound losing half of its value against the US Dollar in 2023.
Therefore, it is clear that a combination of dire mismanagement and external shocks has put Egypt in a situation where it is facing a precipice with debt payments of $28 billion in 2024 alone. This comes in tandem with yet another crisis in the form of the conflict in Gaza. Sharing a land border with Gaza, Egypt is the sole viable destination for potentially millions of Palestinian refugees and fears a further escalation of the conflict scaring away the tourists that Egypt so desperately needs.
Although the feared decline in tourist numbers has not materialized, Egypt continues to be exposed to destabilizing forces of the conflicts on its borders. Not only is Israeli Prime Minister Benjamin Netanyahu declaring his intention to continue the war in Gaza for “many more months”, raising further questions about Gazans’ ability to return to their flattened homes, but the conflict is also raising tensions around the Middle East. The most pressing concern of the Egyptians is the Houthi attacks on civilian ships crossing the Bab-el-Mandeb strait, which is a chokepoint on the eastern approach to the Suez Canal. It is yet to be seen whether the US-led coalition dispatched to protect the crucial trade artery will be able to assuage the fears of shipping companies that have resorted to rerouting their ships through the longer and costlier route around the Cape of Good Hope. Furthermore, the civil war in Egypt’s southern neighbor Sudan continues to escalate, while the strife in Libya appears far from being resolved. Consequently, Egypt is surrounded by active wars on all of its land borders.
Even though the proper reaction to the situation Egypt finds itself in is one of despair, there exists a straightforward path for the country to exit its current predicament. With its youthful population and proximity to Europe, Egypt is in a prime position to benefit from the post-pandemic trend of near-shoring. The country holds immense potential for renewable energy with its perennial sunshine and 12% of global trade crosses its territory through the Suez Canal. The force holding the country back is not its misfortune, but gross mismanagement by its leadership.
The prime culprit of this is the military establishment. On top of forming the political elite, the military controls swaths of the economy ranging from construction to tourism. With tax exemptions, opaque budgets, and influence within the government, these military-owned companies stifle competition and private entrepreneurship. Furthermore, this concealed web of influence is further buttressed by American military aid. Coming at $1.3 billion a year, Egypt is the second largest recipient of US military aid after Israel.
The prescription given by Egypt’s traditional international creditors such as the IMF is clear; deliver on the long promised market-oriented reforms and curtail the influence of the military in the economy and you will unlock billions in additional credit. The Gulf countries, on the other hand, are mainly after economic privileges and political support. However, there still exists a situation akin to a Mexican standoff. Home to one out of four Arabs and hosting some of the most influential institutions in Islam such as Al-Azhar, Egypt is simply too big to fail. Its neighbors cannot afford a country of this magnitude to descend into chaos as Lebanon, Libya or Syria have, and knowing this Egypt’s leaders leverage the threat of self-immolation to squeeze more money out of its funders without engaging in meaningful reform.
It is clear to the most elementary follower of geopolitics that such a situation is unsustainable. Over the past decades Egypt has been mired by poverty, but it has nevertheless not witnessed the levels of violence and emigration many of its neighbors have. Seeing the agitation fewer than half a million irregular migrants that have entered the EU in 2023 has caused, it is difficult to envisage the tremors that a fraction of the predicted 50 million new Egyptians by 2050 heading to Europe can unleash in the case of economic failure or simply a change in power gone awry.
Moreover, any obstruction of the Suez Canal would cost Europe dearly. Not only would it hit the global supply chains, especially on the Europe-Asia axis, fragilized by the Pandemic, but it would once again endanger the continent’s oil and natural gas supplies. Since the price shock of 2022 Europe has been shifting from piped Russian gas to LNG, much of which is shipped from Qatar and crosses the Suez. Any impediment to shipping through the canal would unleash these pressures, significantly increasing inflation and once again sparking a cost of living crisis for Europeans, with unpredictable political consequences.
Therefore, Egypt should be on every international observer’s watchlist for the coming period. It is now more urgent than ever for Western governments and international institutions to revisit their policy of supporting seemingly stable regimes which only confine pressures for larger future crises. This approach has characterized Western relationships with the MENA region in the past decades and is only as sustainable as the hollow regimes it relies on. In the case of Egypt, without any pressure to change tack from the regime’s backers, we can only hope that the standoff ends with its leaders acquiescing to genuine reforms and the former bread basket once again offering a prosperous future for its people. It is time Egypt is allowed to unleash its full potential and rediscover its historic role as a source of stability and a model for the region.