Egypt 2.0: Struggling to create a post-revolution economy
Egypt’s economy was stagnant even before things began to heat up in late-January 2011
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The Egyptian revolution did not make Egypt’s economy falter. The country’s economy was moribund even before things began to heat up in late-January 2011. In fact, lack of economic opportunity was a key driver for the mass civil unrest that eventually toppled former President Hosni Mubarak just a few weeks later.
But a revolution to make things better has made it worse.
Global banks began to voice concerns over Egypt’s economic state, predicting capital flight. A weak Egyptian pound – and the subsequent boost to already high inflation – and an ailing stock market and dramatically slackened foreign investments have made Egypt even weaker than it was before the uprising. In the Mubarak era, Egypt’s economy was hampered by government intervention: namely, subsidies for food, housing, energy and bloated public sector payrolls, according to the US Department of State.
And now, in a post-Mubarak Egypt, here are the facts: Egypt has an escalating public debt of more than 80.5 percent of its gross domestic product. It is unable to make comprehensive economic reforms until a more permanent government is seated in September. Meanwhile, the country’s foreign reserves have now fallen to $28 billion from $36 billion in February because it has been desperately using up its foreign currency holdings to stabilize inflation.
The reserves could be depleted within six months, a senior member of the Supreme Council of the Armed Forces recently warned, which could plunge Egypt further into economic mess. This could also keep investors away, bad news for a faltering economy seeking to bring in investments. The Egyptian stock market dropped 22 percent during the revolutionary protests.
“Investors are now hesitant to put money in Egypt – there is lack of knowledge about where the revolution will go next and so there is uncertainty of where the business environment will go next,” says Justin Dargin, a Middle East geopolitics and energy expert at Harvard University. “Investors like to have predictability and this is one hindrance in Egypt for many investors.”
Meanwhile, until now the country has not begun internal economic reconstruction. Instead, it is relying on billions of dollars of aid from the international community and taking measures to uncover corrupt businessmen who have taken their assets out the country.
“Regardless of whether they are guilty or not, they have fled from the country and taken their investments out of Egypt,” thus impacting the economy, says Mr. Dargin.
The euphoria of ousting Mr. Mubarak has diminished and the hard realities of post-revolutionary life are settling in, he adds. “This may potentially spread more dissent and discord amongst Egyptians,” he says. “They want rapid economic change, but … things are quite chaotic now. It is unlikely the situation will pick up within the next year.”
He wants to see strong measures come from Egypt’s new government, ones that suggest transparency at the governance and economic levels.
The world will not see Egypt 2.0 until all of this happens.
By Eman El-Shenawi