Muslim Brothers and Egypt’s economy

Published February 20th, 2012 - 07:36 GMT
The Brotherhood and its businesspeople know that Islamic banking accounts for less than 4 percent of the local banking industry
The Brotherhood and its businesspeople know that Islamic banking accounts for less than 4 percent of the local banking industry

Egypt’s new Parliament is taking seat amid ongoing protests on the streets, deteriorating relations with the United States over impending trial of NGO workers and threats that the U.S. might review $1.3 billion in Egyptian military aid. Thus, it’s essential to read into the economic policy the Muslim Brotherhood will devise to redress an economy battered by a year of severe mismanagement by the ruling military junta and its successive transitional governments.

The Brotherhood’s political arm, the Freedom and Justice Party, or FJP, won 47 percent of the seats in the parliament in January 2012, and concerns about that accession to power largely concentrate on secondary issues – sartorial restrictions, alcohol prohibition, gender-segregated beaches – leaving little room for serious policy discussion.

For the first time in its modern history, Egypt has been placed under the tutelage of an Islamist party. And more than cultural attitudes, its economic policies may signify the most profound changes for the country. FJP’s economic policy is a confusing series of ideas, mostly aimed at its conservative constituency. Short of a complete economic plan, FJP works from a series of clippings.

Trying to discern a pattern from those clippings, one is struck by two competing ideologies wrestling within the economic policymaking: One is an interventionist tendency reflecting the organization’s traditional hierarchical structure. For example, Abdel Hafez al-Sawy, now leading the FJP’s Economic Council, criticizes Egypt’s “unproductive and rentier economy” while emphasizing the need to encourage productivity by selecting “prime” sectors.

The other is a group of Islamist industry and trade leaders headed by Khairat al-Shater, a multimillionaire businessman who found himself imprisoned by the Mubarak regime, his assets twice confiscated. He is now a FJP strategist and senior leader of the Muslim Brotherhood. Shater and others, such as his partner Hassan Malek or Safwan Sabet of household brand Juhaina fame, would argue for a liberal, market economy with a business-friendly climate. Shater is already tasked with leading the massive “Renaissance Project” for FJP, a long-term plan to fix the economy, public administration, health and education. The project, with a generous budget, is at the heart of FJP’s strategy.

Alongside such laudable generalities as restoring trust in the economy and self-sufficiency in strategic goods, FJP advocates for a mixed-basket of policies that include an export substitution industrial policy in cooperation with the private sector; controlling budget deficits and public debt, while rationing public spending; increasing the minimum wage, an original demand of Tahrir Square protesters; strengthening competition and anti-trust legislation; introducing a progressive income tax; and raising the ceiling for tax exemptions.

The interventionist and free-market tendencies explain why commercial banks and the stock market won’t see their business threatened. Despite declarations of “moving to an Islamic economy” – one where interest-free Islamic finance replaces conventional commercial banking – embedded in the party platform, the Brotherhood and its businesspeople know that Islamic banking accounts for less than 4 percent of the local banking industry, estimated at $193 billion. They don’t want to frighten depositors and borrowers. The government will likely encourage banks to offer Islamic financial products to clients.

Most striking about FJP’s top-down approach in a nation where 25.2 percent of the population lives below the poverty line is the perception of poverty alleviation as a form of charity, not a necessary outcome of economic growth. This is a remnant of the Brotherhood’s past far-reaching organized charity work. The source of their grassroots support is a historical perception of how development is “done,” as per the electoral program, with “permanent and continuous financing” through charity. Tellingly, the poverty-alleviation section of the electoral program is under “social justice,” not “economic development.”

So how will government finance charities and balance the national budget? Here, the FJP fumbles, offering little about fiscal policy in its electoral program. The FJP seems to plan on methodically going through all of the country’s pockets.

One potentially deep pocket is several billion in government “special funds” – slush funds not supervised by the government or included in the state budget. Another would be to cut energy subsidies for industry, a $3.3 billion reduction – both ideas of the previous transitional government. The FJP also estimates that “reviewing all oil and gas export deals” could provide $18 billion to state coffers – a wildly hypothetical estimate, as it assumes trade partners, most notably Israel, will agree on changing terms of agreements. Another improbable source of income, hinted at by FJP, is making zakat – yearly alms that Muslims should pay to help the less fortunate, amounting to 2.5 percent of wealth – compulsory, not voluntary.

Ironically, a revenue-generating sector that seemed most threatened from the Brotherhood’s ascent – tourism – might escape unscathed. “No citizen who makes a living from [tourism] should feel concerned,” FJP officials stated, attempting to ease worries of the almost 1 in every 9 Egyptians whose livelihood depends on the industry.

The FJP promises to protect tourist sites, open new markets and improve tourism infrastructure. While restrictions on activities like alcohol consumption might befall Egyptians, and that’s unlikely, tourists should notice no big changes. How the Brotherhood’s budget turns out depends on how parliamentary alliances coalesce. Existing tensions between liberal and Islamist parties will be replaced by common interests; the Brotherhood will find good allies in economic policy in smaller pro-market parties across the aisle.

The end result will be a stumbling, learn-as-you-go pragmatic pro-market economic policy with a strong welfare component. Deregulation will slow. Relations with international donors won’t change. In the end, the Brotherhood’s economic policy may represent little change from the past two decades, as Egypt’s economic policy maintained massive subsidization while conducting, or at least promising, pro-business reforms.

Investors at home and abroad remain wary. An FJP-led government’s main challenge, then, is to do the following: Reassure investors and entrepreneurs of its commitment to a market-based economy, while fulfilling its commitment to relieve poverty through charity and social programs and eradicating corruption that has vilified the market economy in the eyes of Egyptians.

Mohamed El Dahshan is an economist and a writer. This commentary is reprinted with permission from YaleGlobal Online, Copyright © 2012, Yale Center for the Study of Globalization, Yale University.

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