Despite economic growth, most Egyptians still struggling

While Egypt boasts one of few countries in the MENA region whose economy improved, the relief is not being felt on the microeconomic level

Alexandria, Egypt (photo credit: Wikimedia Commons)
Alexandria, Egypt
(photo credit: Wikimedia Commons)
The Egyptian gross domestic product (GDP) increased this year, bolstered by a revival in certain key sectors of the economy, such as tourism. While this spurs some to hope this is a sign of a faster fiscal recovery from the 2011 Arab Spring, which devastated the country’s financial system, the average Egyptian has not experienced the elevated prosperity.
According to the World Bank’s recently released Global Economic Prospects Report about the MENA region, Egypt is one of the few countries in the area with positive financial development. The analysis indicates the Egyptian economy ‘s estimated growth was 5.7% in 2019 and is forecasted to be 5.9% in 2020.
Timothy E. Kaldas, nonresident fellow at the Tahrir Institute for Middle East Policy, argues that much of the economic growth is felt in Egypt’s energy field.
“While Egypt’s economy is showing some signs of macroeconomic stability and higher levels of growth, most of this growth is restricted to the oil and gas sector, which employs very few people,” he told The Media Line.
Kaldas argues that this part of the Egyptian economy does not have larger implications for Egyptian’s broader fiscal health.
“Outside of oil and gas, the private sector has actually contracted most months in the past three years,” he said.
The World Bank also sites tourism as one of the main reasons why Egypt’s economy became more robust. It accounted for nearly 12% of Egypt’s GDP in 2018, the same fiscal year with the highest ever tourist expenditure of $12.5 billion.
The report says: “Tourism, aided by government promotion initiatives and improved security, is expected to continue supporting activity in Egypt…”
However, Hafsa Halawa, a nonresident scholar at the Middle East Institute, questions how much President Abdel Fattah el-Sisi’s security policies are responsible for preventing terrorism.
“Egypt has a security problem more generally and has benefited from certain security policies and work done by the security apparatus…” she told The Media Line. “Broadly speaking, Egypt is neither more nor less ‘safe.’”
“The crackdown,” she continued, referring to Sisi preventing journalists or those who disagree with his regime from expressing themselves, “that continues is part and parcel of the ideology behind the Sisi regime. … There is simply a belief within the system that at this current time of fragility, the country cannot ‘survive’ waves of dissent, activism or opposition.”
Returning to economics, Joel Beinin, Donald J. McLachlan professor of history and professor of Middle East history emeritus at Stanford University, argues that the money spent by an increasing number of foreign visitors in Egypt does not have a cascading effect on the entire economy.
“Tourism does not have a lot of forward and backward linkages to the rest of the economy. It creates only limited employment beyond the immediate sector because it is a service, not a production sector,” Beinin told The Media Line.
Mohamed El Dahshan, managing director of OXCON Consulting, an economic development advisory firm, and fellow at the Tahrir Institute for Middle East Policy, agrees:
“Tourism punches far below its weight,” El Dahshan told The Media Line. “The government has, for instance, celebrated that upwards of 12 million tourists have visited the country this past year. [It casually ignores] the fact that this is less than the numbers we had 10 years ago – and that countries across the Mediterranean, such as Italy or Spain, attract, respectively, five to seven times as many.”
Stanford’s Benin further contends that increasing economic growth from sectors like tourism is not synonymous with good fiscal health.
“GDP growth does not indicate an improving economy. The GDP can grow if there is more foreign direct investment, if there is more foreign aid or a host of other reasons that have little to do with improving the living standards of the majority of the people.”
There has been an influx of international investment due to Cairo’s legislators making changes in economic policy, especially from China. According to the Egyptian Independent, the Chinese consul general in Alexandria said that China has invested almost $7 billion into the Egyptian economy.
The World Bank acknowledged foreign investment in its report:
“Egypt’s macroeconomic reforms since 2016 include the liberalization of the exchange rate, business climate reforms, and energy subsidy reforms,” the global prospects report said. “These reforms have been positively perceived by investors and may have raised the country’s export and investment prospects.”
Dr. Ofir Winter, a research fellow of Egypt Affairs for the Institute for National Security Studies (INSS) at Tel Aviv University explained that these amendments to Egyptian policy were made as part of conditions for a three-year loan with the International Monetary Fund of $12 billion.
“Egypt instituted reforms like floating of the foreign exchange rate. A lot of products became much more expensive due to this measure but it helped Egypt stabilize its economy and attract foreign investment,” Winter told The Media Line. “The result was huge inflation at first but it accelerated its economy. The many Egyptians working abroad could send money home more easily, so remittances became a more significant form of [revenue] coming into Egypt.”
Winter explained that another economic change that Sisi authorized because of the loan was the removal of subsidies for basic items, like bread and fuel.
“[The subsidies] became less of a burden on the Egyptian budget, it enabled Egypt to invest in other sectors in a more responsible way to put more money in other public services, like education and health,” he said.
This, however, came at a cost for working families.
“A lot of people from the middle class became poorer as a result of the reforms the inflation and removed subsidies,” Winter said.
“Most of the economists agree,” he continued, “that the reforms were crucial and productive. Still, the result for the population is difficult in the short term.
Stanford’s Beinin believes that a better gauge of how the economy is doing is not by foreign investment or GDP but rather the number of young adults with jobs, or lack thereof.
“Youth unemployment in Egypt is about 32% according to the St. Louis Federal Reserve Bank but 15.7% according to official government data from the [Central Agency for Public Mobilization and Statistics],” he said.
These figures further emphasize Beinin’s point that wealth is not being shared among the country’s populace.
“The economy is improving some, according to the standard economic indicators, [but] not yet very dramatically,” he said. “The great majority of Egyptians are not benefiting from this improvement.”
INSS’s Winter agrees.
“The quality of life is not improving for many people,” e said, arguing that this is more of a “political problem” for Egypt’s leaders.
“When we see positive [growth], it provides increased rationale to [the government’s argument that] things are going to be better,” he added. “The regime now has to convince its [populace] that they need to remain patient and not lose hope for economic improvement.”
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