SIM REPORT: North Africa, Issue 1
There is a genuine fear among foreign investors that the recent economic progress the country has witnessed in the last fiscal year will stall due to concessions the government is likely to make in order to appease demonstrators after a wave nationwide of anti-government protests swept the country.
Just last month, Egypt was being praised by Kristalina Georgieva, the International Monetary Fund’s (IMF) managing director for its economic turnaround since 2016. The regime of President Abdel Fattah al-Sisi has made the country favourable to international investors with legal and economic reforms to attract foreign investors. Egypt’s economy increased by 5.6 per cent this year as a result of reforms that were enacted as a condition to access a five-year USD11.9 billion extended fund facility by the IMF that concluded in November.
In accordance with the deal, the government was able to bring its budget deficit down to 8.2 per cent this year, compared to 12.2 in 2016 when the deal was agreed. El-Sisi’s government pushed for steep devaluation of the Egyptian pound by 48 per cent, imposed a value added tax, and reduced energy subsidies.
However, despite the fiscal consolidation, the austerity measures have created short-term pains for most Egyptians, many of whom have taken to the street in countrywide protests since 20 September.
In a country where demonstrations have been banned since 2013 and a state of emergency has been imposed since April 2017, anti-government demonstrations pose great security risks. The protests erupted when the exiled popular businessman and former military contractor, Mohammed Ali, called for the protests after he accused el-Sisi and his government of corruption. At least 3,000 people have been arrested since the protests began. Both the state apparatus and the pro-government media have taken measures to quell the mass anti-government demonstrations which have continued despite the mass arrests. The government has promised to conduct policy changes, which will include reductions in the price of basic goods.
The growing discontent is over rising living costs, caused by a combination of subsidy cuts, inflation, and currency devaluation. Sisi has also been accused by critics of wasting millions of dollars of public money on his two flagship economic projects – the Suez Canal expansion and the construction of a new capital city – while neglecting social spending. Widespread discontent is also fuelled by alleged misguided responses to ongoing water shortages across the country. According to a report by the Central Agency for Public Mobilisation and Statistics, at least 33 per cent of Egyptians were classified as poor last year, a 28 per cent increase from 2015.
The protests, which show few signs of abating in the one-month outlook, are likely to force the government to roll back on policies. Subsidies for fuel, electricity and other goods will likely be reintroduced in the three-month outlook. On 1 October, Minister of Supply and Internal Trading Ali Moselhi stated that the food ration cards that were suspended on November 2018, will be reinstated in order to grant food subsidies to over 2 million Egyptians. In addition, on 4 October, the government lowered fuel prices, the first time since 2016. However, such concessions are unlikely to appease Egyptians.
Such concessions could lead to the country not being able to reach agreements with the IMF that allow the continuation of co-operation between the IMF and Egypt. The government is likely to continue the trend of reversing subsidy reforms as well increasing salaries in various public sector jobs, leading to more government spending.
The IMF remains positive about Egypt’s economic outlook; however, the austerity measures the country undertook are not sustainable with the general populace paying the price and displaying its anger towards a government known for its low tolerance towards any threat to its authority. Austerity measures have helped improve the country’s economic outlook but have failed at meeting the employment requirements of a population of more than 100 million. Egypt’s status as an emerging market will be under threat especially if protests continue.
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