Egypt Between Presidents and Problems

Egypt’s economy will be at the heart of the transition to democracy

One day before Egypt’s first freely contested presidential election and it is anyone’s guess who the country’s next leader will be. Even with only a handful of frontrunners among the thirteen candidates, picking the likely winner is a puzzling task with momentum continuing to shift between them late in the game. The only thing that appears guaranteed is a second round of voting between the two leading presidential hopefuls in a runoff scheduled for the middle of June. Yet no matter who the next president of Egypt is, the myriad problems he will face are enormous and will surely spell trouble ahead for the newborn democracy.

The ‘January 25th Revolution’ that brought down the regime of Hosni Mubarak—the autocrat who ruled the country for over three decades—has unavoidably hurt the Egyptian economy and the state of security for its citizens. Both of these issues now stand at the very top of peoples’ concerns according to a recent Pew Research poll conducted in May. Moreover, the country still lacks a constitution: the parliament having failed to agree on a drafting committee prior to now. Sectarian tension between extreme Islamists and the large Coptic Christian minority has left blood in the streets. And former members of the old regime, including Mubarak and his children, have yet to be held accountable.

Egypt’s woes go well beyond the host of post-revolution quandaries that have popped up over the last fifteen months. Egyptians flooded the streets of Tahrir Square not only for political freedom but, in larger numbers, for economic and social opportunity.

“If you look at the 16 months since the revolution, more and more you saw the economic demands coming up because they are real life demands,” says Nabil Fahmy, Egypt’s former ambassador to the US and founding Dean of the School of Global Affairs and Public Affairs at the American University in Cairo. “And we are going to face more of them.”

Egypt’s real economic troubles cannot be wished away or even solved in a matter of a few years. They are deep-rooted problems that could take a generation or more to solve.

“Strategically speaking, the country needs a more solid vision of development,” says M. Anis Salem, the Director of Development Works International, based in Cairo, and a former UNICEF ambassador. “There are serious structural vulnerabilities, like the dependence on external sources of revenue; remittances, oil and gas exports, Suez Canal and tourists. The growth model, even if it can work despite the global recession, will never result in a major jump forward. If you double GNP per capita in the next ten years—and that will not happen—you will still not be anywhere near meeting the demands of a population heading towards 100 million people.”

To make matters worse, the economy has taken a nosedive since the revolution left a vacuum in political leadership. Foreign-currency reserves have fallen from $36 billion to around $15 billion, enough to pay for only a couple months of imports. Inflation is running at 12 percent, tourism has fallen by a third; and uncertainty has caused foreign investment to shrink to less than a twentieth of its level five years ago.

“There are immediate issues that need to be fixed. Obtaining the IMF loan, security, getting tourism back on track. Signaling a sense of predictability and stability for investors. Also, the very sensitive question of rationalizing subsidies,” says Salem.

Listening to the presidential candidates on the campaign trail, one would think that the answers to these problems are only an electoral vote away. Yet, political experience is not one of the traits held by the first crop of presidential candidates in the nation’s history. And who can blame them. Not many people are interested in seeing a former member of the regime back in office, which leaves the candidate pool with a dearth of experience.

Besides Amr Mousa, a former foreign minister under Mubarak and Secretary General of the Arab League, none of the presidential candidates have ever held national political office. The second most experienced candidate is Ahmad Shafiq, a former Air Force general who assumed the position of prime minister for one month during the final days of the Mubarak regime. While the task ahead is daunting, none of this has stopped the candidates from raising expectations.

“The media has not been critical enough of these pie in the sky pledges,” says Salem. “Presidential candidates have promised heaven on earth without being taken to task as to how they propose to find the money to fulfill their targets, like raising health expenditure to 15 percent of the budget, or solving the problems of slum areas in 5 years, or building 2 million housing units during one term in government.”

Last week, frontrunner Abdel Moneim Aboul Fattouh—a so-called liberal Islamist—ran a two-page advertisement in a leading paper listing all his political pledges. These included raising the national spending on education and health to a combined forty percent of the budget, a likely impossible task considering the rest of the budget goes to government salaries, the military and police, and government subsidies—all sacred cows in Egyptian life.

Muhammad Morsi, the candidate of the Muslim Brotherhood, has relied heavily on religious rhetoric during his stump speeches and the comprehensively vague Brotherhood slogan, “Islam is the solution.” Although the Brotherhood has come out in support of a free-market economy, it has been unwilling to elaborate on the details.

It is not only the Islamist candidates making promises that will be hard to come by and the scale of political, social and economic challenges that will confront the new presidency from day one could be overwhelming. The new president will also have to face off with a military establishment that has extended its grasp into all sectors of the society, especially the economy, which it is said to control upwards of 20 percent.

“Assuming the democracy issues move forward, you still have serious economic issues,” says Fahmy.

“You have a severe budget deficit. You have an economy that is growing 1 percent, or 2 percent at most. Decreased revenues, whether they are from taxes, tourism, or exports. You are negotiating loans because you need cash up front. At the same time, you are under political and social pressure to higher all these people, to increase salaries, to increase the minimum wage, to provide national health care, to increase pensions. The next president will face these issues very, very soon.”

During the parliamentary elections in January Egyptians voted in large numbers, demonstrating their eagerness to participate in the democratic process and the faith being invested in democracy. A reversal of the gains is not impossible, however, if the new system fails to produce results and Egypt continues to stumble.

“If [democracy] doesn’t meet sixty percent of people’s expectations over the next five years it will be determined as a failure,” says Fahmy, who admits that there is the possibility for the democratic transition to miscarry. “You need to really make people believe that they are part of the system. When you have forty percent of the population under the poverty line, they are not part of the system. Democracy does buy you time, but it doesn’t buy you a long time.”

If Egypt continues to flounder, with its economy plummeting, there is no telling which direction people might turn, opting for what they know over the instability of this democratic transition. Egypt’s first dalliance with democracy could be put in jeopardy if expectations are not reigned in.

“To a large extent Egypt needs an economic miracle,” muses Salem. “The revolution needs to show results. Expectations are high and the challenges are huge. The percentage of young people in the population, the ‘youth bulge,’ means that opportunities for employment need to be raised and remain high for some time.  This requires stability and major investments. Not easy to predict this happening any time soon. If these jobs don’t materialize, people will go back to the street. More seriously, the very legitimacy of the revolution will be eroded. If that goes, what will we be left with?”

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