Egypt's crisis, Israel's problem

A bankrupt, hungry Egypt, embroiled in a civil war, is not a scenario anyone in Israel can welcome.

 A woman protests about hunger and poverty in Cairo (photo credit: MOHAMED ABD EL GHANY / REUTERS)
A woman protests about hunger and poverty in Cairo
What in the world is happening to Egypt and the Egyptians? As an economist, I find that the cold statistics are woefully unhelpful.
I visited Cairo in 1995, hung out at the Israeli Research Center, ate ful (fava beans) sold on street corners, and enjoyed the joie de vivre of ordinary Egyptians, even the poorest of them.
I found no hatred at all of Israel or Israelis. Despite the polluted air, I jogged along the Nile. I saw the enormous hole dug in central Cairo, where a new underground railway was being built, and watched the traffic somehow edge perilously around it. I loved listening to the language of incessant taxi horns, that could say anything from “I will kill you!” to “pretty please, may I squeeze by?” – depending on volume and duration.
But in the past 18 years Egypt has changed. Today Egypt is split down the middle between Islamists and secular liberals, who despise each other. Once peace-loving and jovial, Egyptians today are anything but. It is unclear for how long the army can keep a lid on these tensions and prevent civil war.
I don’t know how or why this happened, but it bodes ill for Israel; nothing good for Israel ever came of chaos on its borders.
On June 24 last year, Muslim Brotherhood candidate Mohamed Morsi was elected Egypt’s fifth president. But instead of trying to grapple with his country’s pressing economic problems – inflation, unemployment, falling tourism, declining industry – Morsi focused on consolidating the Muslim Brotherhood’s grip on political power following its decades-long ban from involvement in political activity. A year after Morsi’s election, mass protests involving some 14 million people led the Egyptian Army to remove him from office.
Egypt is lagging behind in many ways; it ranks 108th out of 142 nations, for instance, in terms of “global innovation.” Israel sits in 14th place. But in one dimension, Egypt is highly advanced. It places 15th in the world in terms of “E-participation,” i.e., the proportion of its population that is online and Internet-savvy. It is this capability that enabled a loose coalition known as Tamarud (“rebellion” in Arabic) to mobilize so many millions in June.
Morsi’s background and education should have made him an effective leader. An engineer, he has a Ph.D. in materials science from the University of Southern California, where he also taught for a time, and was head of the Engineering Department at Egypt’s Zagazig University until 2010, when he entered politics. But as the Russian saying goes: His thumbs (used to repress foes) were far nimbler than his fingers (for managing Egypt).
Morsi’s bumbling government caused Egypt to lose half its foreign exchange reserves; at their current level, some $15 billion, they are now barely enough to pay for three months of imports. Tourism under Morsi dropped off by half; and 12 months of Brotherhood rule, with populist policies like raising the wages of government workers and giving them lifetime tenure, shattered Egypt’s strained state budget.
Cairo’s budget deficit is now an unsustainable 13 percent of its gross domestic product (GDP). The biggest, single budgetbuster, though, is the monster fuel subsidy that keeps the price of gasoline cheap.
Last April, the petroleum minister, Osama Kamal, said the subsidy this year would cost $17.5 billion or 120 billion Egyptian pounds, partly because after a decade of stability, Egypt’s currency has fallen sharply of late, from six Egyptian pounds per dollar to seven, thus upping the cost of imported oil in Egyptian currency. Egypt today can no longer afford fuel and food subsidies. But since the country’s poor depend crucially on these subsidies, reducing or eliminating them would lead to riots ‒ an impossible dilemma.
Some four million Egyptians are registered as unemployed – around 13 percent of the labor force. This number, however, is misleading because many out-of-work Egyptians aren’t actually counted as unemployed – they’ve simply given up even looking for a job. One Egyptian in every five between the ages of 15 and 29 has never ever worked a day in his or her life. Moreover, Egypt’s birthrate last year reached 32 for every 1,000 people, or 3.2 percent, topping the previous peak in 1991, just before Hosni Mubarak’s government stepped up family planning. This means that Egypt has 2.4 million new mouths to feed every year. And sadly, the Muslim Brotherhood shunned family planning.
Most disturbing of all is the report in April by the UN’s World Food Program in Cairo that states that 30 percent of Egyptian children face stunted physical growth and brain development problems due to malnutrition. According to the Haaretz daily, “Egypt is the world’s largest importer of wheat, half of which it distributes to its 84 million people in the form of heavily subsidized saucer-sized flat loaves of bread, which sell for less than 1 US cent.”
Morsi’s ousted minister of supplies, Bassem Ouda, told Reuters on July 11 that the state was left with just 500,000 tons of imported wheat. Egypt usually imports about 10 million tons a year; in other words, the remaining stock is enough for Cairo to feed its people for less than a month.
Under Mubarak, Egypt’s GDP grew at times by 5 percent annually. Under Morsi, it fell by 4 percent. Mubarak and his family are said by MIT economist Daron Acemoglu, quoting various sources, to have pilfered up to $70 billion. But the former president’s repressive regime ran Egypt’s economy far better than Morsi did.
Over the years, the United States has given Egypt massive foreign aid. Between 1948 and 2012, Washington provided Egypt with $72.9 billion in aid; and at present, the Egyptian military gets $1.3 billion annually from Uncle Sam, making Egypt the third-largest recipient of US military aid after Afghanistan and Israel. Washington announced recently that it would be delivering F-16 fighter jets to the Egyptian Air Force as planned. I wonder if wheat flour might not do more good.
Egypt today is a society divided between Islamic followers, residing mainly in the country’s villages, and liberal, secular youth, living primarily in the cities. The two groups are roughly equal in number and a huge chasm separates them because Egyptian Muslims are very extreme in their views. A survey of 38,000 Muslims in 39 countries, conducted by the US think tank, the Pew Research Center and released on April 30, found that 85 percent of Egyptian Muslims who support shari’a (Islamic) law are in favor of the death penalty for those who leave Islam – a higher proportion than in any other country, including Afghanistan and Pakistan.
In their 2012 book, “Why Nations Fail,” Acemoglu and James A. Robinson tackle the age-old question: Why are some countries rich while others are poor, becoming “failed nations” like Zimbabwe, Sierra Leone, North Korea and Somalia? Their book begins with Egypt.
“To Egyptians,” they note, “the things that have held them back include an ineffective and corrupt state and a society where they cannot use their talent, ambition, ingenuity and what education they can get. But they also recognize that the roots of these problems are political. All the economic impediments they face stem from the way political power in Egypt is exercised and monopolized by a narrow elite. This, they understand, is the first thing that has to change.”
The June 2012 elections, which were mainly fair and honest, should have done just that. But they failed. Now, a de facto army coup has set Egypt’s democracy back for perhaps decades.
I once saw a sign in a CEO’s office that said, “Just because you have a crisis does not mean that I have a problem.” In the case of Egypt, indeed it does; Egypt’s crisis is Israel’s problem.
So what should Israel do about it? For a start, it should help the Americans to understand Egypt better, to refocus on Egypt rather than on Secretary of State John Kerry’s stubborn obsession to restart Israeli-Palestinian peace talks. President Barack Obama’s call to Egypt’s army to release Morsi from house arrest is naïve. Once freed, Morsi will mobilize the Islamic Brotherhood to organize protests that could descend into civil war.
Let Israel, behind the scenes, and America, in the forefront, work to help Egypt buy the wheat and fuel it needs – in the short-term, to feed and transport its people and to generate electricity, and in the longterm, to restore the economic growth the country needs to create jobs for its booming population. A bankrupt, hungry Egypt, embroiled in a civil war, with terrorists roaming the Sinai Peninsula freely and scheming how to attack Israel, is not a scenario anyone in Israel can welcome.
Since Morsi was ousted, the United Arab Emirates, Saudi Arabia and Kuwait have offered $12 billion in cash, loans and fuel to Cairo. If the aid does arrive – by no means a certainty – the army-appointed government led by former finance minister Hazem el-Beblawi will gain a few months of breathing room to save the sinking ship.
Meanwhile, Israel should not be smug about its own political serenity and economic prosperity. “Egypt is poor,” note Acemoglu and Robinson, “because it has been ruled by a narrow elite that has organized society for its own benefit at the expense of the vast mass of people.” GDP growth of even 5 percent counts for little when the resulting wealth is concentrated in the hands of the few.
Israel, too, has its billionaire tycoons who have used their wealth to buy political influence. Israel has one of the least-equal distributions of income in the Western world. This is probably why there are social protests against the proposed export of some of Israel’s natural gas. The fear is that the resulting wealth will end up in very few hands. Egypt shows what can happen when that process is allowed to take place.
In the age of instant mass protests assembled via Facebook and Twitter, an inclusive fair economy in which all share in prosperity has become a necessary condition for a healthy democracy. Citizens will no longer wait patiently for four years to toss out an incompetent government whose hands are all thumbs, no fingers, manipulated by billionaires. Egypt has proved that. Politicians everywhere, you’ve been warned.
The writer is senior research fellow, Samuel Neaman Institute, Technion.