Egypt: A Work In Progress But Open For Business
While Egypt still grapples with the ongoing security and political challenges that have developed since the uprisings of January 2011, one area that requires immediate attention and substantial transformation is the Egyptian economy. A lack of economic progress coupled with systemic unemployment has crippled Egypt and its younger generations. By some reports youth unemployment sits at nearly 60%. There are indications that the Egyptian economy is beginning to strengthen, however, Egypt will require extensive and sustained reforms if it is to have long term growth that improves the lives of the vast majority of Egyptian society.
President Sisi has implemented several reforms and has announced large scale infrastructure projects which are designed to reinvigorate an economy that has suffered from the domestic and regional upheaval of recent years. The announcements are also meant to instill confidence in private investors that Egypt is open for business. Egypt will need private sector investments of at least $28 billion in order to meet the growth target of 3.5% by the end of the current fiscal year. It is clear that the private sector will have to play a large role in Egypt’s economic transformation.
In February of next year an economic summit has been planned which is aimed at presenting projects to international investors. This is a step in the right direction for a country that is in dire need of foreign direct investment. The government has targeted $10 billion in FDI for the next year. Attracting foreign investment is one component of Egypt’s strategy as it was laid out by Investment Minister Ashraf Salman.
There are three aspects to the government’s socioeconomic program: structural reform, stimulus development plan and infrastructure.
Earlier this year Mr. Sisi announced a massive new infrastructure project that plans to add another lane to the 145 year old Suez Canal. It is a tremendously ambitious plan to expand the canal given that the government is seeking to complete the new channel within a year. The Suez Canal currently brings in $4-5 billion a year in revenue and the hopes are that the expansion will lead to increased cargo transport which could potentially double the current revenue intake. While many within the country are optimistic, investors and analysts are skeptical. Some have questioned the reported benefits of such an undertaking as there are still unknown details about how the project will be completed. As Remy Marcel, a MENA co-fund manager at Amundi, put it:
It is too early to really figure out what would be the consequences of this project. On paper it looks very positive; it would help to create some jobs and increase revenues.
Along with the proposed canal expansion, Mr. Sisi has taken on the challenge of reforming Egypt’s decades-old energy subsidies. Egyptian citizens were extremely critical of President Mursi for the power blackouts that left sections of the country without electricity for hours on end. While the blackouts have continued under Mr. Sisi, the current president has taken the step to eliminate many energy subsidies. Fuel prices were raised up to 78 percent earlier this year and other energy subsidies were cut by $5.6 billion in an effort to reduce the country’s budget deficit and reform the energy sector. This is a fine line to walk as changes in energy prices will severely impact those on the lower end of the economic spectrum. This government, however, feels it is the right course of action to take. “By streamlining those subsidies,” Finance Minister Hany Kadry Dimian said, “we will have better economic efficiency and capital would be better allocated.”
Of all the sectors of the Egyptian economy hit hardest by the turmoil of the past three years it would have to be the Egyptian tourism industry. Egypt had been one of the most popular destinations in the Middle East for tourists but since the 2011 uprisings and the subsequent instability, tourism revenue has plunged through the floor. At their peak, tourism revenues were reaching $12.5 billion a year but since 2011, the country has only managed half that figure per year. Egypt has been heavily reliant on tourism to boost its GDP but internal instability relating to militancy in the Sinai as well continued violence between the government and Muslim Brotherhood supporters in Cairo have kept millions of tourists away from Egypt.
The steps taken by the Sisi government demonstrate that it is aware that the country needs to make substantial economic progress. Even though IMF managing director Cristine Lagarde recently said she was “very impressed” by the current government’s reforms there are still many hurdles to overcome. In order to have comprehensive economic development, Egypt will have to reconfigure its overly bureaucratic institutions which hinder business development and substantial improvements in health care and education reform are desperately needed so that the younger generations can access a more active economy. As ASP Founder and Secretary of State John Kerry recently emphasized to his Egyptian counterparts:
You got to put people back to work; you’ve got to build the dignity of day-to-day life; you have to open up opportunity; you have to attract capital; you have to prove to the world that the country is stable and open for business…
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