Egypt's Economy: the Crisis Continues

Elections to the lower house of the Egyptian parliament have drawn to a close, with the main Islamist groupings, led by the Muslim Brotherhood’s Freedom and Justice Party, winning a sizeable majority of the 570 available seats. Although the failure of the secularist and left-wing parties to achieve a higher percentage of the vote represents a serious setback for the more radical elements of Egyptian society, there is no question that the conservative Islamists have secured a clear mandate to form a significant part of any future government. Of course, whatever its composition, the most immediate challenge facing that government will be the revival of the Egyptian economy, the condition of which has steadily worsened since the overthrow of Hosni Mubarak last year.
A slowing economy

Before the revolution, Egypt’s economy had been growing at a relatively healthy rate of around 5% per year for most of the last decade. Today, as a result of, among other things, frequent strikes, reduced industrial activity and bureaucratic corruption, it has slowed to just 1%. The Egyptian trade deficit has also worsened, surging by 70% between September 2010 and September 2011 to reach $3.1 billion.

Part of this is due to the slump in overseas demand following the global recession. Another major factor in the country’s economic crisis is the huge fall in revenues from the tourist industry. Earlier this month, the minister in charge of tourism, Munir Fakhri Abdel Nur, announced that revenues from the tourism sector had dropped by 30% between 2010 and 2011, representing a loss of nearly $4 billion. Speaking to the AFP news agency, he blamed the fall on political instability: “The significant drop in revenues last year was expected in a country where millions revolted in all main cities and where the political situation has been developing for the past 12 months.”
On-going unrest

It goes without saying that there is a social dimension to Egypt’s economic woes. High rates of poverty (20% of the population), youth unemployment (90% of all people out of work) and inflation (12% in total consumer prices) helped fuel the uprising against Mubarak. If these indicators continue to rise under the new regime, it too could face some sort of popular revolt. At the very least, failure to properly address these problems will exacerbate the simmering political, ethnic and religious tensions which have come to the fore since last January.

For instance, violent sectarian clashes between hard-line Salafists and minority Copts are increasing. In September, 11 people died in a gun-fight outside a church in Cairo after rumours spread that a Coptic woman had been coerced into converting to Islam, while in October another 23 people were killed in a similar incident. Then, at the start of November, political conflicts began to flare up once more as 42 protesters were shot dead and 3,200 injured in a series of confrontations with the security forces.
History repeating?

However much it may be tempted, the Egyptian military elite is aware that it cannot suppress these tensions in the same draconian fashion as it did under Mubarak, hence its subsequent apology for the killing of the demonstrators. But without the veil of quasi-civilian government to disguise its central role in holding back democratic advance, it is inevitable that the military will become the focus of public resentment and discontent. For its own sake, then, the Supreme Council of Armed Forces (SCAF) will have to take immediate and meaningful action to improve working conditions and employment prospects for ordinary Egyptian citizens.

If it proves incapable of doing this – and so far the signs are not good – sections of the population could become desperate enough to attempt a second revolution. Although, again, the first instinct of the military will be to respond with increased levels of violence, it will be under huge international pressure to accommodate some popular demands.

The United States, in particular, will be keen to ensure Egypt does not slide back – or further – into authoritarianism. If the US cannot demonstrate that some kind of ‘democratic transition’ is taking place in Egypt, it may find it more and more difficult to justify the $1.3 billion in aid it hands over to SCAF every year. At the same time, the US will be keen to ensure there is not a breakdown in relations between Cairo and Washington as this could have very profound implications for Israel, the US’s main ally in the Middle East.

The need, then, of the authorities in Egypt – whether military or civilian, democratic or authoritarian – to swiftly and effectively address the issue of the country’s dysfunctional and deteriorating economy is clear. A failure to do so could have immense global as well as domestic repercussions.