In 2013, the year the Muslim Brotherhood was removed from power, the outlook for the Egyptian economy was gloomy. Three years of political unrest and two revolutions had scared away investors and tourists and economic growth had slumped to 2.1 per cent. As alarming economic indicators piled up, so too did day-to-day problems. Power cuts and long queues at petrol stations became the norm.
Nine years on and the economy is in a much better place. Minister of Finance Mohamed Maait has announced that Egypt’s real GDP will have reached 6.2 per cent in fiscal year 2021-22, which ends on Thursday. And things could have been even better had it not been for two massive crises: the Covid-19 pandemic, and a war with global repercussions.
Headed by President Abdel-Fattah Al-Sisi, the administration which came to power in 2014 prioritised investment in infrastructure, ploughing billions of dollars into building new power plants and radically upgrading the road network. High public investment, combined with strong private consumption levels, drove economic growth rates. In 2015, however, things took a turn for the worse with the downing of a Russian flight over Sinai by terrorists. Tourism, a major source of hard currency revenues, was dealt a heavy blow. Reserves began to shrink and, amid a thriving black market, pressure on the pound increased.
The foreign currency crunch and dwindling international confidence prompted the government to embark on a reform programme with the backing of $12 billion from the International Monetary Fund (IMF). The reforms included devaluing the pound, which lost half its value, implementing a value-added tax, and cutting fuel subsidies.
Gradually things began to look up. “Improving confidence is boosting private consumption and investment, adding to the increase in exports and tourism,” the 2018 IMF Regional Economic Outlook reported.
In 2019, the IMF was forecasting that Egypt’s GDP would grow by 5.9 per cent in 2020. But then came Covid-19.
Though everyone feared the worst, Egypt’s economy has weathered the crisis caused by the pandemic thanks to macroeconomic stabilisation achieved in previous years, Aya Al-Kafrawi, an economist at N Gage Consulting, told Al-Ahram Weekly.
“Egypt was the only country in the North Africa/Middle East region not to have experienced recession during this period. Domestic consumption, public and private, has not recorded a single negative quarter in the last two years,” wrote Pascal Devaux, an analyst with BNP Paribas.
Al-Kafrawi points out that not only did the United Nations Commission on Trade and Development (UNCTAD) rank Egypt as the top FDI destination in Africa between 2015 and 2019, the country maintained its position at the forefront of inflows in 2020, attracting $5.9 billion.
To keep the economy moving in the face of the pandemic, in April 2021 the government announced the launch of the second phase of its economic reform programme, shifting the focus onto structural reforms. The National Structural Reform Programme (NSRP) aims to develop three main sectors — manufacturing, agriculture, and telecommunications and information technology — over a three-year period. At the time, Prime Minister Mustafa Madbouli said the new structural reforms would target sustainable growth rates that remain immune to exceptional conditions.
Egypt’s economy grew by 9.8 per cent in the first quarter of fiscal year 2021-22 compared with 0.7 per cent for the same period in the previous year, Minister of Planning Hala Al-Said was quoted as saying in a cabinet statement in November 2021.
Since then, the outbreak of war in Ukraine and its impact on commodity prices has taken a heavy toll on the Egyptian economy. According to Al-Kafrawi, inbound tourism plummeted by 35 per cent, and the prices of subsidised butane and wheat surged by seven per cent and 18 per cent, respectively. To mitigate the repercussions, the Central Bank of Egypt revised its monetary policy, raising key interest rates by three per cent since 21 March, and allowing the pound to further depreciate against the dollar.
According to Devaux, spiralling prices will result in a significant drop in consumer purchasing power and thus stall the main engine of economic activity, while at the same time the erosion of foreign currency liquidity, which has accelerated over the last months with massive outﬂows of capital, will lead to a widening of the current account deﬁcit.
The government, nonetheless, remains optimistic. On Monday the Minister of Finance told the American Chamber of Commerce in Egypt (AmCham) that Egypt’s real GDP growth is expected to stabilise at 5.5 per cent in fiscal year 2022-23.
The pursuit of structural reforms must persist in order to unleash the private sector’s potential for higher value-added and export-oriented activities which are essential for raising living standards and creating jobs, Sherif Fahmi, chief operating officer of N Gage Consulting, told the Weekly.
The government’s latest State Ownership Policy Document details a number of moves to improve the economic situation, including empowering the private sector and providing opportunities for its participation across a wide range of activities, thus increasing the private sector’s contribution to GDP, investments, government revenues, and exports, and rationalising public spending in ways that support the budget and ensure financial sustainability.
A couple of weeks ago, Prime Minister Madbouli launched consultations on an ambitious State Ownership Policy Document, further pushing plans for greater private sector involvement in the economy. The government wants to boost private sector participation to 65 per cent in the next three years, up from the current 30 per cent. It is also targeting $40 billion in foreign investments over the next four years.
“Enhancing private sector participation in the Egyptian economy will require government efforts to maintain competitive neutrality and secure an enabling legislative environment for economic activity,” stressed Fahmi.
Extending social protection programmes, and the launch of the Decent Life initiative which aims to improve living conditions in Egypt’s poorest villages, have helped cushion the impact of economic reforms on the poorest.
Madbouli said fighting poverty had always been the cornerstone of the government’s policies. “Our social-protection programmes — particularly Takaful and Karama — are now providing financial assistance to 32 million poorer citizens,” he said, adding that the government’s policies had helped lower the poverty rate for the first time in 20 years, down to 29.7 per cent from 32.5 per cent in 2017-18.
A version of this article appears in print in the 30 June, 2022 edition of Al-Ahram Weekly.