Egyptian Strategic Report 2019
There is much debate among observers on the reality of Egyptian economy, in light of the successive decisions, laws and enterprises, described as “national projects”, that have excessively relied on domestic and external borrowing for their financing, in addition to debate about the priority and even economic feasibility of such projects.
The report aims to provide an analytical picture of the overall Egyptian economic conditions, starting from analyzing the official figures with the aim of extrapolating the results in attempt to explore the validity of approach, the feasibility of action and the sustainability of the impact, as original goals of any development process. With regard to the Gross Domestic Product (GDP) growth, the growth boom is mainly due to growth in 6 sectors, accounting for about 77% of it during FY2017/2018, namely the mining sector by 15.8%, the manufacturing industries by 12.2% , the construction sector by 10.3% , the wholesale and retail traders sectors by 9.6%, real estate activities by 7%, and the agricultural sector by 6.8%.
The sectors that mainly contribute to the GDP growth are: the mining sector, the Suez Canal returns, tourism, and Egyptian expatriate remittances, that is, the main components of GDP in Egypt are “rentier”, mainly dominated by sectors that depend on consumption; and therefore, it can be said that current economic growth is neither inclusive nor sustainable. Consequently, the current GDP growth rate is lacking the main goal of achieving growth, i.e. raising the living standards of citizens, as the average citizen still suffers from high inflation, as well as poor education, health care and transportation services. The figures also show that the high GDP growth figures are mainly denominated in the Egyptian pound. However, if they were denominated in US dollar, we would find a GDP contraction, not growth, after FY2015-2016.
Also, the unprecedented high rates of domestic and external debts necessitates that about 40% of government spending in budget must be allocated for paying off the loan interest, and may result in a weakening the regime’s ability to borrow in the future, in addition to the direct impact of borrowing on the private sector’s domestic investments due to the high interest rates. This has resulted in a lower total value of private sector investment amid the foreign investment’s focus on hot money and the stock market instead of investment in productive sectors.
In addition, the high inflation rates as a result of flotation of the Egyptian pound, lifting fuel subsidies, and increasing energy prices, have mainly contributed to raising the cost of austerity policies on Egyptian citizens. With the absence of appropriate pay increases that cope with the inflation rates and high prices, the numbers of the poor in Egypt have escalated to unprecedented rates, adding about 5 million more citizens to those already under poverty line within only three years, to raise the total number of Egyptians under poverty line to more than 30 million citizens – where official poverty rates have increased to 32.5% in 2017, against 28% in 2015, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).
Before 2011, the Egyptian economy had suffered from a set of structural imbalances to which it is still held hostage up to date. Rather, the extremely high rates of domestic and external borrowing have added more imbalances. In addition, the political interference in directing economic projects has contributed to creating a significantly dangerous economic situation in the medium and long term.
This report represents a detailed reading in the policies and challenges of Egyptian economy after 2013, focusing on analyzing and understanding some basic data and information about its development from mid-2013 until now. It provides a holistic view of the economic policies followed by the regime led by General Abdel Fattah Al-Sisi and their actual results, in order to answer the question of whether the current path is the right track for development that may lead to improvement of the Egyptian economy.
In this regard, the report concludes that the policies adopted by the Sisi regime so far have not achieved the desired results; but on the contrary, inflation, poverty and debt rates have escalated, with continued weakness of health care, education and transportation services. In addition, a critical reading of the results that the current government claims to be positive, tells us the opposite, as Bloomberg has indicated, that only 1% of the Egyptian people benefit from those results.
The report focuses on the final results of each of the key elements affecting the Egyptian economy without entering into detailed deep data. For example, the current report assesses the monetary policy as a whole, given its impact on inflation and external debt. At the same time, the report addresses in more detail the factors that affect these indicators such as evaluating the performance of the Central Bank of Egypt and its policies, as well as the work of banks and the corruption in the banking system. The reason for this is the desire to present a brief assessment that may highlight the economic reality by analyzing the final results of policies rather than focusing on addressing their details.
The report discusses 6 main elements of the Egyptian economy, namely the Gross Domestic Product (GDP), the State’s general budget, the outcome of monetary policies, the foreign and private investment, the analysis of poverty and unemployment results, the current aspects of poverty, and the social impact of the policies pursued. The report also addresses the army’s incursion into economic activity and presents a holistic review of the Egyptian economy by analyzing leakage and injection factors. The report then concludes with presenting a summary and some recommendations, including an outlook of the Egyptian economy during the coming years.
The report is divided into two main parts:
The first part, prepared by Dr. Ahmed Zikrallah, is about the “Egyptian economy – policies and challenges”, which provides a description and analysis of the economic policies adopted by the Egyptian regime during the period under study, and the most important challenges facing it.
The second part, prepared by Dr. Amr Darrag and Mustafa El-Nemr, introduces an “analytical reading” and practical summaries of the key policies and challenges facing the Egyptian economy during the period (2013-2019).
Following is the full analysis of “Egyptian Economy under Sisi: Reality and Future”, prepared by Dr. Amr Darrag and Mustafa El-Nemr, as follows:
Egyptian Economy under Sisi: Reality and Future
Dr. Amr Darrag & Mustafa El-Nemr