x Abu Dhabi, UAEFriday 21 July 2017

Egypt's economy is crippled by unrest but GCC states could offer vital help

A year after the first excitement of Tahrir Square, Egypt is awash in problems. But GCC investors could provide urgently needed jobs while giving themselves a good return.

A full year has passed since the extraordinary events in Cairo's Tahrir Square brought down the three-decade-old regime of Hosni Mubarak, and raised expectations about living standards for millions of Egyptians.

As the most populous Arab country, Egypt is a bellwether for the region; success in the political transition there would be encouraging for the whole Arab world.

Yet despite a nascent democratic process and parliamentary elections, the country is facing rising instability, as shown most recently by riots that left scores dead. Tens of thousands of protesters returned to Tahrir Square to renew a revolution which has so far failed to deliver on its promises.

Mistrust of the authorities continues to grow, with protesters openly attacking the police. Anger and frustration are on the rise as the economy deteriorates.

The latest Zogby polls show that employment remains by far the principal concern for most Egyptians; 92 per cent of respondents rate it the "most important" issue.

Democracy, by contrast, was ninth on the list, below the Israeli-Palestinian conflict. This focus on the need for job creation has increased since 2009. (It was also the top issue for those polled in Tunisia, Jordan, Lebanon, Saudi, Iraq and Iran.)

In Egypt, the irony is that the revolution is dashing the very economic hopes it helped to create: Egypt's growth rate has fallen from 5 or 6 per cent per year to 1 per cent or less, and foreign direct investment has plummeted by worse than 90 per cent. The government's US dollar reserves have dwindled alarmingly, as it faces a liquidity crunch and a fiscal crisis. The deficit is in excess of 10 per cent of GDP.

A $3 billion (Dh11 billion) loan from the IMF, previously rejected, is now being sought. But it will likely come with stiffer conditions now, and will not in any case go far towards addressing budgetary needs.

Just to stop unemployment from rising, 700,000 jobs must be created in Egypt every year. That would require an unachievable 7 per cent annual growth in GDP. Instead, the official rate of unemployment is expected to rise from 10 to 15 per cent, and youth unemployment is easily double that figure.

The ruling Supreme Council of the Armed Forces has remained focused on trying to stabilise the security situation and has devoted little time or interest to economics.

The Islamist parties that won control of the lower house of parliament in the elections, despite having played little role in the initial revolution, have indicated a return to socialist policies that are likely to deter needed investment.

Above all, the job situation has considerably worsened for average Egyptians. Once-booming high- employment sectors such as tourism and construction are virtually frozen. Countless day labourers who come into Egyptian cities every morning leave disappointed.

Erratic government decisions - to reverse previous privatisations or reclaim land under development by private companies from the region - have done little to inspire confidence; capital is cowardly in the face of uncertainty.

Recently elected Muslim Brotherhood MPs have spoken out against public swimming and the serving of alcohol; this has hurt tourism.

Incidents such as the kidnapping of an elderly American couple, and the shooting death of a French tourist, do not help either. No quick recovery can be foreseen in the tourism industry upon which 15 million Egyptians depend.

Egypt's long-term prospects could be very positive, but without action to stabilise the short to medium-term jobs crisis, the country may never achieve that potential.

A failed Egypt would have disastrous regional ramifications, and so a quick turnaround is the best protection against political extremism and security instability.

The GCC could play a significant role in rescuing Egypt. Gulf countries are by and large welcome and respected and don't face the same mistrust as western firms. And GCC companies are already major investors in Egypt.

GCC governments could commit to a new infrastructure fund to invest in large projects. These could provide attractive returns and create jobs speedily. This new fund would be separate from any existing loans or grants.

Such a fund would also give confidence to the local and regional private sector. And GCC states could insist upon written investment guarantees and added incentives to protect its companies.

The one-year-old Egyptian revolution, seems to be taking a negative trajectory. Urgent concrete steps are required to reverse the short-term economic decline, which will in turn enhance the political process and security outcome.

 

Majid Jafar is the chief executive of Crescent Petroleum and a board member of the Sharjah Chamber of Commerce and Industry