Egyptian economy recovering despite terror threat
Cairo - Despite terrorist attacks, the government crackdown on the Muslim Brotherhood and battles between the army and Islamist militants in Sinai, Egypt’s economy has been till now showing signs of recovery.
Since becoming Egypt’s president in June 2014, Abdel Fattah al-Sisi has initiated a process of economic reform aimed at getting tourism back on track, encouraging foreign investment and creating jobs through mega-projects.
In a matter of months, Sisi slashed fuel subsidies, reorganised the subsidised food system and introduced security measures to convince countries to lift warnings against travel to Egypt.
Most importantly, he launched a number of major projects aimed at reinvigorating the economy after a painful slowdown following the January 2011 revolution.
One key project is the development of the Suez Canal, which — apart from creating a new waterway along the existing canal, allowing two-way transit shipping — will turn the canal region into a major industrial hub. Once completed, the project is expected to attract international investment in logistical support, shipbuilding and car manufacturing.
Gouda Abdel Khalek, Egypt’s former supply minister, underlined that, in addition to the economic benefits that it is expected to garner, the project’s importance lies in the fact that it united Egyptians around a common national goal.
“The project has been implemented at a record time (one year, instead of three) and with pure Egyptian funding,” Abdel Khalek said. “This sends very important messages about the abilities of the people of this country.”
The project is expected to create a large number of jobs, important in a country where the government estimates unemployment at 13.4% of Egypt’s workforce of 26 million.
“We are talking about hundreds of thousands of jobs,” said economics expert Atef Herzalla. “The idea is for the canal region to turn from a mere transit point to an international industrial hub with an export-oriented mindset.”
Signs of Egypt’s economic recovery have started to show with foreign currency reserves, around $14 billion a year ago, improving to more than $20 billion in 2015, according to Egypt’s Central Bank.
In 2014, 9.9 million foreign tourists visited Egypt, compared to more than 11 million tourists expected this year, the Egyptian Tourism Chamber said.
The World Bank acknowledged that Sisi’s reforms had started to have positive effects on the economy, which grew 2.2% in 2014 and is projected to grow 4% in 2015. Herzalla was even more optimistic, projecting 5% growth in 2015.
“Our economy is moving at a very good pace and I expect it to perform a lot better in the years to come,” he said.
The deficit in the 2015-16 state budget is projected at 9.9%, a little less than the 10.8% of the 2014-15 budget but a lot less than the 13% deficit of the 2013-14 budget. Almost half of public spending in the current budget was allocated to social welfare programmes, a 12% rise from the previous one.
In March, the government signed investment contracts worth $180 billion, including more than $60 billion in the field of energy.
Egypt also plans to build a new capital to the east of Cairo to ease congestion and overpopulation in the existing metropolis over the next 40 years. The project, expected to take five to seven years to complete, would cost more than $40 billion. Sisi’s government is also working on adding 3,200 kilometres of roads to the country’s existing network, creating giant fisheries in the eastern coastal city of Ismailia and reclaiming an additional 420,000 hectares to raise Egypt’s total farmland to 4.2 million hectares by the end of his tenure in June 2017.
Some of Sisi’s reforms have already benefited the poor in a country where up to 30% of the population lives below the poverty line, according to UN figures. A key reform aims to stamp out corruption in the allocation of subsidised food by ensuring it reaches those who are truly eligible for it.
According to Supply Minister Khaled Hanafi, the new subsidised food allocation scheme would reduce the bill of food subsidies from $5.8 billion to $4.6 billion in the new budget.
But other reforms, including ones related to slashing fuel subsidies, have proven to be hard on the poor, given the fact that raising fuel prices has led to higher commodity prices.
In June, inflation reached 11.5%. While this was 2% less than the inflation rate in May, observers say it is eating up any improvements in the income of the majority of Egyptians. Abdel Khalek argued that some of the new economic policies have benefited the rich at the expense of the poor.
“Trickle-down policy is proving to be a mere illusion… Some measures need to be taken to target and benefit the poor directly,” he said, referring to provinces in southern Egypt that have long been neglected.
The government’s plan to reclaim an additional 420,000 hectares “will not pay off without upgrading Egypt’s irrigation network”, which has not been rehabilitated for 40 years, Abdel Khalek added.
Herzalla, however, said he expects Egyptians to feel the effects of the work done today by the government within the next two years.
“Factories that closed down earlier are reopening and projects carried out now will create hundreds of thousands of jobs,” he said. “All this will eventually affect the public in a positive manner.”