Summary
After long being the center of the Arab cultural and political world, Egypt’s power and influence has declined in recent decades. Since the 2011 Arab Spring uprising, which was led by the urban middle class, the country’s regional status has taken a major hit. Furthermore, domestic political and economic issues now constrain Egypt’s once-dominant position. Cairo is no longer able to fend for its own political economy – a situation that is unlikely to be reversed in the foreseeable future.
- Once the leader of the Arab world and a major player in the Middle East, Egypt now struggles to maintain domestic stability in large part due to a struggling economy.
- The current government faces no challenges from any opposition movement; however, the regime is a threat to itself. For decades, the authoritarian republic’s stability kept chronic economic woes in check; now, they are getting out of hand in the wake of autocratic meltdown.
- While Egypt won’t collapse, it is unlikely to improve its domestic political economy anytime soon – much less project power beyond its borders.
Introduction
Many of our readers have noticed that we do not include Egypt among the four powers of the Middle East (Turkey, Israel, Iran and Saudi Arabia). Some have written to inquire about our rationale for this assessment. It is a reasonable inquiry given that the country has long represented the intellectual core of the Arab world and remains its largest nation by population. Egypt also maintains the largest Arab military (the 12th largest military in the world).
Despite these factors, Egypt has been losing its ability to shape the Middle East since the 1980s due to a number of domestic security and economic issues. Even so, it managed to chug along. For many years, the authoritarian state’s growing internal weakness was masked by its ability to suppress dissent at home. However, that veneer was shattered in early 2011 with the Arab Spring uprising, which led to the ouster of former President Hosni Mubarak.
In many ways, the underlying factors shaping Egypt’s current crisis were present even before Mubarak’s removal but were exacerbated by the Arab Spring. It is important to note that although the military-dominated regime was not overthrown in 2011, the political system was jolted enough that the state has struggled to maintain stability. In the five years since mass unrest erupted on Jan. 25, 2011, instability has weakened Egypt to the point that it needs massive external financial assistance to manage its own political economy. Even though the regime has thus far succeeded in quelling dissent, Cairo has become increasingly dependent on Saudi Arabia and the other energy-rich Gulf Cooperation Council (GCC) allies to pay its bills.
The Dismal Economic Picture
To understand why Egypt’s power and influence have declined, it is necessary to examine its economy, which has significantly weakened since the July 2013 coup during which military chief Abdel-Fattah el-Sissi took power from President Mohammed Morsi. Morsi was the country’s first democratically elected president and a member of the Muslim Brotherhood (the largest group on the Islamist side of Egypt’s political spectrum); el-Sissi was elected president in 2014.
In an unprecedented move last week, and in order to meet conditions for a $16 billion loan from the International Monetary Fund (IMF), the Central Bank of Egypt devalued the Egyptian pound from 8.8 to 13 on the dollar and then floated it. Since then, the dollar has been fetching around 18 pounds on the open market. As a result, the prices of goods imported to Egypt will increase by about 45 percent. At the same time, gas prices will increase by 30-47 percent depending on the type. Additionally, Egypt’s fuel subsidy cut also came into effect last week as part of a plan to slash its total subsidy bill by 14 percent.
Cairo has resisted subsidy cuts for years, but its hand has now been forced by the devalued and floated currency – something Egyptian Prime Minister Sherif Ismail acknowledged when he told journalists on Nov. 4, “today, we don’t have the luxury to postpone these decisions; today, we can’t take painkiller decisions.” These changes come at a time when Egyptians are still adjusting to government subsidy cuts that increased electricity prices by up to 40 percent from August. A 13 percent value-added tax also approved by parliament in August is now being phased in.
As part of the agreement with the IMF, Egypt needed to secure as much as $6 billion in additional financial support from other countries. Egypt received $2 billion from Saudi Arabia and $1 billion from the United Arab Emirates, and a Central Bank official said on Oct. 30 that the country had reached a currency-swap deal with China valued at $2.7 billion. Thus far, however, only 60 percent of the bilateral financing has been secured and Cairo is still working toward securing the remaining 40 percent. Tarek Amer, the head of the Central Bank of Egypt, warned that the expected economic benefits resulting from the recent changes will not be seen until 2018.
Egypt spends as much as 10 percent of its annual GDP on subsidies, with fuel subsidies accounting for two-thirds of that amount. Since the government has decided to float its currency, Egypt – which relies on imports to meet its energy needs – will now face higher costs for gasoline and other oil products. Egyptians will see rising costs also because of the government’s subsidy cuts.
Meanwhile, the Saudis informed the Egyptians last month that they would halt supplies of refined oil products despite Riyadh agreeing earlier this year to provide Cairo with 700,000 tons of refined oil products per month for five years. The arrangement was valued at about $20 billion. Egyptian Oil Ministry spokesman Hamdi Abdel-Aziz said the kingdom gave no reason for the stoppage, nor did it provide a timetable for when it would occur. The Saudi decision adds more strain for the Egyptians, who will have to search for alternative (and potentially more expensive) sources of refined oil products and will potentially have to spend more.
In addition to economic pressure from increased petroleum costs, proceeds from tourism, a major source of revenue for Egypt, declined by 15 percent in 2015. Only 1 million tourists visited Egypt in 2015 compared to 1.7 million in 2014 and 1.4 million in 2013.
Another factor in Egypt’s dismal economic picture is its unemployment rate. Of Egypt’s population of nearly 90 million, roughly 40 percent are between 10 and 20 years old. Overall youth unemployment in Egypt stands at 30 percent, which is more than double the national unemployment rate of 12.8 percent. Furthermore, the unemployment rate for university graduates is 34 percent, compared to just 2.4 percent for youth who have only a primary level education. These statistics are of particular concern because young people can create mass unrest in hard economic conditions.
In addition, Egypt’s national inflation rate has reached double digits since last April and is currently estimated at 15.5 percent. The government faces large budget and current-account deficits – some 12 percent and 7 percent of GDP, respectively. At the time of the 2011 uprising, foreign exchange reserves stood at $36 billion but dropped to $15.5 billion last July. They currently stand at $19.6 billion – but only after a fresh influx of money from the GCC states. These numbers underscore that it will be extremely difficult for Cairo to fix the national economy.
The Regime Poses a Threat to Itself
Egypt’s severely declining economic conditions have destroyed the massive political capital that el-Sissi enjoyed when, backed by popular demand, he took power and was seen as the nation’s savior. (Indeed, tens of millions of people took to the streets during the July 3, 2013 putsch to force out the Muslim Brotherhood’s short-lived and unpopular government.) El-Sissi’s government was successful in part because it was able to quickly suppress any dissent from Brotherhood supporters; this was possible largely because the state’s security apparatuses retained their coercive capabilities through the 2011 upheaval. Neutralizing political opposition, however, does not help Cairo on the economic front.
El-Sissi has benefited from the fragmented nature of Egypt’s political landscape; as long as the country’s political opponents are divided, the regime can play them off of one another. This holds true for both sides of the Islamist-secularist ideological divide. On the secular end of the political spectrum are multiple small entities that lack broad popular appeal. On the Islamist side, the Brotherhood (the largest of the Islamist movements) faces challenges from rival groups, especially the largest Salafist party, Hizb al-Nour, which has been supportive of el-Sissi.
The threat from Egyptian jihadis has also helped el-Sissi consolidate his government. Cairo has been able to use the threat of the Islamic State along with the fate of Libya, Syria, Iraq and Yemen to prevent insurrectionist Islamist forces from making too many inroads. This has been accomplished by exploiting public fears of anarchy; el-Sissi has warned that unrest will benefit IS and could potentially lead to situations similar to those abroad. Although Egypt saw a series of attacks from jihadis pledging allegiance to IS shortly after el-Sissi came to power, the state’s intelligence apparatus appears to have largely neutralized the threat and limited it to the Sinai Peninsula.
The regime faces no threat from any organized movement, whether peaceful or violent. Therefore, the current order is unlikely to be overthrown by an opposition group. Instead, the challenge to the el-Sissi government comes from within, including its greatest threat, the highly turbulent economy. On this front, it encounters massive constraints – partly because it inherited many of the problems that emerged after the Arab Spring. The regime faces numerous ongoing structural problems that cannot be resolved in the short term, a situation that is complicated by the state’s lack of resources.
To a great extent, many of the country’s economic woes are chronic and thus hardwired into its society. For instance, despite having a large population, Egypt has very few resources. Although it has some natural gas reserves, it has gone from being a natural gas exporter to an importer, which has had a further negative impact on the economy. Additionally, most of the population resides along the Nile River Valley, creating problems associated with population density and limiting the area where economic activity takes place. Any government would be unable to change these fundamental ground realities.
The nature of the regime further limits its options for combating economic issues. The modern Egyptian republic, founded in 1952 when Gamal Abdel Nasser led a group of army officers to oust the monarchy, was designed with the military at its center. Every president since (with the exception of Morsi during his one-year rule following the Arab Spring) has been a former military commander. The armed forces remain the country’s only coherent institution and have controlled large swathes of the economy since the republic was founded, leaving very little room for private enterprise.
The Fall of the Once Mighty
The 1952 coup was as much a domestic revolution as it was a regional one, resulting in Egypt leading pan-Arabism under the Nasser regime. Then, during the 1950s and ’60s, the Egyptians led the drive towards secular republicanism; they did this against the traditional monarchical regimes led by the Saudis. Egypt’s influence spread throughout North Africa, the Levant, the Arabian Peninsula and even Mesopotamia. Through short-lived initiatives, Egypt also formed a unified polity with Syria in 1958 to establish the United Arab Republic, which formed a loose confederation with the Mutawakkilite Kingdom of Yemen (also known as North Yemen). This confederation was called the United Arab States.
Nation-state-based nationalism held sway over pan-Arab form, and both of these entities dissolved in 1961. Egypt, however, continued to lead the Arab world even after its shocking defeat in the 1967 war against Israel. It launched another war against Israel in 1973, and although Egypt failed to win, it negotiated a peace treaty with Israel in 1978 and remained the undisputed heart of the Arab world until the early 1980s. However, its failure to establish a viable political economic system limited its success thereafter.
While the military was prevented from having direct involvement in politics during the Nasser era, genuine civilianization of politics has failed to take root because the military has continued to dominate the system and created a single-party regime with an autocratic nature. Nasser founded the Arab Socialist Union (ASU) as a civilian vehicle to oversee governance while the military ruled from behind the scenes. Nasser’s successor, Anwar Sadat, then replaced the ASU with the National Democratic Party (NDP). After Sadat’s assassination in 1981, Mubarak led the NDP for three decades. His 30-year dictatorship created resentment among the masses, which erupted in 2011 and resulted in his own ouster in the wake of the Arab Spring.
Further weakening Egypt’s influence, the NDP was disbanded when the military took direct control of the government after Mubarak was forced to step down. This move created a problem that the military has not yet been able to solve: the lack of a political vehicle through which to control the polity. When the Brotherhood won parliamentary and presidential elections in 2012, the military briefly moved to establish a modus vivendi with the Islamist movement, which was evident from the fact that the constitution crafted during the short Brotherhood reign gave massive authority to the armed forces. The Brotherhood appeared able to establish a working relationship with the military regime, as has been the case with the Islamist movement’s counterparts in Tunisia and Morocco.
However, the Brotherhood’s strategy of trying to placate the armed forces while pushing out competing political groups (secular as well as Islamist) backfired. Meanwhile, even as it tried to forge an arrangement with the Egyptian military, the Brotherhood faced opposition from other parts of the establishment as well as from civil society groups. It resulted in the uprising that was led by the Tamarod movement on June 30, 2013. The resulting gridlock, with Morsi refusing to step down, created a situation where the military had to once again hit the reset button.
Egyptian opposition protesters chant during a demonstration in Tahrir Square as part of the “Tamarod” campaign on June 30, 2013 in Cairo, Egypt. Crowds of pro- and anti-Morsi protesters gathered in locations across Egypt on June 30, the day of a series of nationwide mass demonstrations entitled “Tamarod” or “Rebel,” planned to take place on the first anniversary of Morsi’s election. Ed Giles/Getty Images
When establishing the new government, the military chief – el-Sissi – hung up his uniform to become elected as a civilian president. El-Sissi was popular with the masses because they believed he could stabilize the country; the regime hoped this popularity would buy time to improve economic conditions so that the people would not return to Tahrir Square, the site of both the 2011 uprising and the 2013 coup. However, those hopes have not materialized, as is evident from the economy’s continued downward slide despite an influx of billions of dollars.
The regime is incapable of engaging in the kind of economic reforms that are needed to reverse the current economic trend. For instance, the Egyptian citizenry is accustomed to its subsidies, and eliminating them could lead to much larger protests than those associated with the Arab Spring. Furthermore, IMF officials have reportedly described Cairo’s changes to secure the IMF loan as cosmetic. The changes have likely been cosmetic because the regime fears that large-scale reform measures could spark the very unrest that it is hoping to avoid. For instance, the prime minister acknowledged the risk during a Nov. 3 press conference by recalling the 1977 Bread Riots that erupted over austerity measures (including subsidy cuts), forcing Sadat to cancel the measures.
Conclusion
The post-Arab Spring climate is far more volatile than Egypt’s climate was during the Bread Riots. However, caught in a very difficult situation, the regime has no choice but to secure IMF funding to prevent the economy from further declining. This is especially true since Saudi Arabia and the other Gulf states are unable to assist Egypt given the plunge in oil prices and the rise in their domestic and foreign expenses due to regional turmoil. Should the economic situation get particularly dicey and people take to the streets, el-Sissi will become the regime’s scapegoat. The generals will be forced to once again open up the political system, removing the president and allowing another round of democratic elections in order to weather the economic storm.
In addition, Egypt lacks the resources to deal with regional conflicts outside its borders despite having a large military force and no external challengers. For example, it has refrained from playing much of a role in neighboring Libya, where a complex civil war is underway. Even regarding the Palestinian conflict, with which Egypt has been heavily involved in the past, Cairo has not been able to do much. It stands to reason, therefore, that Egypt will also be unable to play a role in Syria and the war against IS. Regardless of how Egypt attempts to muddle through its deep economic malaise, it is clear that the country will continue to struggle on the domestic front for quite some time. Moreover, it will not regain its ability to be a major influencer in the Arab world.
