November 21st, 2011
02:03 PM ET

Egypt’s dire economy

Editor's Note: Ilan Berman is Vice President of the American Foreign Policy Council in Washington, DC. The views expressed in this article are solely those of Ilan Berman.

By Ilan Berman - Special to CNN

Some eight months after the ouster of its long-serving strongman, Hosni Mubarak, Egypt’s revolution remains the most prominent byproduct of the so-called “Arab Spring.” But where, exactly, is Cairo headed? While there remains no shortage of optimism about Egypt’s future in many quarters, a close look at the economic indicators suggests that the country may not be moving toward post-revolutionary stability at all. In fact, it is rapidly heading in the opposite direction.

Since this spring, in a development largely unnoticed by the outside world, the Egyptian economy has virtually imploded. Between February and June of this year, the country’s stock exchange shrank by nearly a quarter, sending shock waves through the region’s jittery financial markets. Worried over the Egyptian government’s post-revolutionary solvency, the International Monetary Fund proffered some $3 billion in preferential financing to the new government to stabilize the economy. But Cairo chose to reject the offer, believing that Middle Eastern nations would step in and fill the void with the necessary investment and aid.

Unfortunately, they haven’t. Despite lofty pledges of assistance, tangible help from the Persian Gulf’s wealthy monarchies has been exceedingly slow in coming. (Egypt is still in negotiations with Saudi Arabia and the UAE for a notional $5 billion in loans, while Qatar has delivered on a grant of $500 million, but only in recent days.)

Western assistance, too, is still mostly notional. In his much-publicized Mideast speech back in May, U.S. President Barrack Obama promised Egypt debt forgiveness to the tune of $1 billion, and loan guarantees for the same amount. The G8 followed suit, pledging at its June summit in Deauville, France to provide some $20 billion to aid the pro-democracy transition in Egypt. Despite these promises, however, precious little tangible financial assistance has actually made it to Cairo, at least so far.

Without it, Egypt’s economy has entered a death spiral. Foreign investment has withered on the vine, as skittish investors steer clear of Egypt’s tanking financial sector. As a result, Egypt’s foreign exchange reserves are said to be declining by $1 billion per month. Debt, meanwhile, is mounting; according to informed estimates, the country’s ballooning budget deficit will reach nearly nine percent of GDP in the next year. Meanwhile, Egypt’s external debt - already some $35 billion - is poised to get significantly bigger, as officials in Cairo desperately try to borrow their way out of their fiscal crisis.

Just how bad is the situation? A telling assessment was recently provided by Ahmed al-Borai, Minister of Manpower and Immigration in the country’s transitional government. “Egypt is currently passing through a critical period and on the brink of bankruptcy,” the Egyptian daily Al-Masry al-Youm reports al-Borai telling an investment conference in Alexandria in early October. “[Egypt’s] losses are growing day by day.” The forecast, according to al-Borai, is dire. “Either we band together and change the current situation, or let Egypt be destroyed.”

All of which suggests that, at least in the case of Egypt, the “Arab Spring” hasn’t netted prosperity at all. Rather, it has produced the kind of economic malaise that predisposes societies to seek relief by embracing authoritarian central control. That, in turn, could be a boon to illiberal elements - including the country’s main Islamist movement, the Muslim Brotherhood, which is now organizing to dominate upcoming parliamentary polls to the detriment of its secular rivals.

That outcome isn’t necessarily a foregone conclusion, however. New infusions of foreign capital from Western stakeholders, if judiciously disbursed and pegged to real economic and political reforms, could begin to reverse the country’s current, ruinous course - or, at least, provide Egypt’s government with much-needed breathing room to begin putting its economic house in order. So, too, might a strong American policy that leverages the $1.9 billion in aid to Egypt that Washington still disburses annually to jump-start greater dialogue and coordination among the various political parties now struggling to fashion a concrete national agenda.

Without such engagement and assistance, Cairo’s current drift could easily end up confirming the most pessimistic predictions surrounding Egypt’s transformation - that, having ousted the Mubarak regime, the country’s revolutionaries are destined to wind up with something far worse.

The views expressed in this article are solely those of Ilan Berman.

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Topics: Economy • Egypt

soundoff (20 Responses)
  1. j. von hettlingen

    According to WikiLeaks in 2008 the militariy in Egypt was alleged to control many sectors of the economy.

    November 21, 2011 at 5:55 pm |
    • j. von hettlingen

      The Revolutionary Guard is thought to control around a third of Iran's economy – black and official markets.

      November 22, 2011 at 5:30 am |
      • j. von hettlingen

        In both cases, the military provides for stability, as long as the execute doesn't interfere in its business arrangements

        November 22, 2011 at 5:32 am |
      • j. von hettlingen

        Please read the EXECUTIVE....

        November 22, 2011 at 3:40 pm |
      • Alexander Langer

        Revolutionary Guard is in Iran, wrong country. That being said, the idea is right, a significant portion of the Egyptian economy is controlled by the military,

        November 22, 2011 at 5:49 pm |
    • Hummm!!!

      Egypt has been ruled by the military from the time that King Farouk and his son Fuad were over thrown by General Muhammad Nagub in 1953 and have not given up one oz of power sense. They may have given up Mubarak but they didn’t give up the power no matter what you pansies think the power in Egypt is controlled by the men with the guns and not the people without the guns!!!

      November 23, 2011 at 11:41 pm |
  2. Edgy33

    If you think the Egyptian economy is bad now, just give it some time. It can only get worse. The whole Middle East works on backseesh and foriegn slave labor, not exactly a model for economic stability.
    Add in the Muslim Brotherhood and now you are really cooking!!
    Americans simply don't grock that what works here will fail elsewhere. It's called cultural difference and cannot be underestimated.

    November 22, 2011 at 9:56 am |
  3. Andyvon

    Stop messing about Egypt and bring back Mubarak.

    November 22, 2011 at 10:36 am |
  4. Toppolina

    Egypt will survive. It has survived for over 6 thousand years so what is going on now is nothing. Also had it not been for the looting of Mubarak and his family and cronies, Egypt would have prospered tremendously and most definitely would not have needed the help of the so called rich Gulf states or the supposed US assistance which was mostly arms given to the army and a few other projects that benefited the deposed despot. I believe Egyptians are the most educated and brightest of all Arabs and they will overcome all difficulties.

    November 22, 2011 at 12:13 pm |
  5. Nichole

    Alicia

    November 22, 2011 at 4:56 pm |
  6. Goodguy1

    TOURISM is Egypt's economy. If you cannot have peace no one will visit your country. Just take a look at the difference between a Costa Rica and most of their neighbors. Costa Rica has tourism because it is relatively peaceful. The other countries are mired in violence and no dinero is coming in.

    November 22, 2011 at 5:29 pm |
  7. Fred_the_fop

    Figures this zionist would say such garbage.

    November 24, 2011 at 4:30 am |
  8. abo waqass- calgary

    عاجل – معلومات جديدة عن شركة ( الفوارس ) الكويتية المختصة بالتجسس وجمع المعلومات عن ( ضباط الجيش العراقي السابق والحرس الجمهوري والبعثيين وأماكن تواجدهم ) وتقديم الدعم اللوجستي للقوات الأمريكية المحتلة ومن قلب المنطقة الخضراء
    ( الحلقة الثانية )

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    وصلت هدهد سليمان معلومات جديدة من (الرصاص الملثم ) حول شركة الفوارس القابضة الكائنة في ( حي الحارثية / شارع الكندي / محلة 213 زقاق 19 دار 12 ) تؤكد على ما يلي :

    1. أن المدعو المهندس ( نزار حسين حافظ ألساعدي) الذي يدير الشركة في العراق يرتبط ب( فيلق القدس الإيراني ) إضافة إلى ما ذكر عنه من معلومات خاصة ذكرت في ( الحلقة الأولى ) والتي نشرت بتاريخ ( 2 تشرين الثاني 2011م ) .

    2. تعود ملكية (شركة الفوارس) إلى احد شيوخ عائلة ( آل صباح ) في الكويت .

    3. عمل المهندس ( نزار حسين الحافظ ألساعدي ) في شركة ( بيت النخبة ) مع عمر المشهداني والذي اصدر مذكرة إلقاء قبض بحق عمر وفق المادة ( 4 إرهاب ) من اجل ابعاده عن الشركة .

    4. ألمدعو (نزار غسان حبيب الملاك) العراقي المقيم في الكويت والذي هو صاحب الدار الذي تشغله ( شركة الفوارس ) في (حي الحارثية / شارع الكندي / محلة 213 زقاق 19 دار 12 ) والذي نشرت معلومات عنه في (الحلقة الأولى) , يمتلك شركة ( الملاك ) منذ احتلال العراق والمتخصصة بالمقاولات الإنشائية والمدنية ولها دور كبير في الدعم اللوجستي وبناء مقرات للقوات الأمريكية في العراق , وأغلقت في سنة 2005 بسبب تهديدها من جماعات مسلحة .

    5. أن مدير شركة ( الفوارس القابضة ) السيد ( ولسن شاؤول كوريال بنيامين ) هو احد الشركاء الرئيسيين ل( الشركة الإيرانية ) التي أحيل إليها مناقصة بناء ( 200 ) مدرسة في العراق , ودخل السيد ( ولسن شاؤول كوريال بنيامين ) المناقصة أعلاه باسم شركة ( رامن كروب ) وهي الشركة المملوكة لأبنه ( رامن ) التي فشلت في تنفيذ بناء المدارس والتي أثيرت في مجلس النواب ضد ( خضير الخزاعي ) علما أن ( ولسن شاؤول كوريال بنيامين ) شريكاً ل ( الشركة الإيرانية ) بنصف حصة العقد الخاص بالمناقصة الخاصة في بناء ( 200 ) مدرسة في العراق .

    6. هناك معلومات مهمة ودقيقة بالأسماء والشركات التي وردت في الحلقتين ( الأولى والثانية ) ستنشر لاحقا ...

    November 25, 2011 at 12:17 pm |
  9. BigguyinTx

    Egypt is getting/will get what it deserves. Prosperity ? No. Violence, maybe a civil war or a new military dictator? Yes. This is what we can expect when these ignorant (poorly educated) masses get to run things. Add in the age old influence of Islam and the pot will boil over. Then they'll blame Israel. Ha!

    November 29, 2011 at 1:25 pm |
  10. Adam

    The majority in Tahrir now ( a few hundreds ) are either criminals or hired guns. Dont give them attention. They love it !

    November 30, 2011 at 5:04 am |
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