Egypt’s El-Araby: ‘We don’t have an energy strategy’


Most of the coverage of Egypt’s transition period of the past three-plus years has focused on fundamental political, security and religious issues. egypt_flag_new

But the precarious state of the Egyptian economy has underlined the tumult of Egypt’s political process at every stage. Youth unemployment and stagnant growth, in part, fueled the January 2011 protests in Tahrir Square that ultimately toppled longtime Egyptian president Hosni Mubarak in February 2011. The failure of his elected successor, the Muslim Brotherhood’s Mohammed Morsi, to address the fundamental problems of Egypt’s economy was also a significant factor in the June 2013 protests that ultimately encouraged the Egyptian army to push him out of power.

Nearly a year later, the military-led government has enacted a new constitution — though it stifled all sorts of freedoms and killed or imprisoned thousands of Egyptians in order to do so. It now seems prepared to go through the motions of a sham presidential election to install the only recently retired army chief and defense minister, Abdel-Fattah El-Sisi, as Egypt’s next strongman.

So it was with some curiosity that I attended a brief talk earlier today featuring H.E. Ashraf El-Araby (pictured above), Egypt’s minister for planning and international cooperation, hosted by the exemplary Middle East Institute in Washington DC.

El-Araby is a unique technocratic figure in the government — he served in the same role during much of the Morsi administration between August 2012 to May 2013, and he worked from 2006 to 2011 in the technical advisory office of the planning ministry. He earned his doctorate from Kansas State University, and he spent much of his career within Egypt’s National Planning Institute.

If El-Araby’s thinking represents the state-of-the-art on what will become Sisinomics (which is shaping up more like Wolfgang Schäuble than Gamal Abdel Nasser), I wasn’t incredibly optimistic about what I heard. That’s not because El-Araby isn’t a talented economist or an honest broker in Egypt’s increasingly authoritarian government, but because it’s so hard to see a path where the political and military leadership carry out the difficult steps that could transform Egypt’s economy.

Future IMF collaboration. There are no plans to return to talks with the International Monetary Fund for the $4.8 billion loan that Egypt rather desperately needed during the Morsi regime. El-Araby didn’t expect any turn to the IMF until after the elections — and he said that he believed the parliamentary elections will happen sometime before the end of the summer after the May 26-27 presidential election (that El-Sisi is almost certain to win).

The coming fight between economic liberals and the military. El-Araby said that he saw ‘no role’ for the military in the economy. That’s wishful thinking at best, though. El-Sisi rose though the ranks of the Egyptian military as a protégé of Mohamed Hussein Tantawi and other top military officials. He owes his position, as the presumptive president of Egypt, to the military.

He also know fully well that the military holds a veto over political power in Egypt — because he exercised the military’s veto against Morsi in July 2013.

The problem is that the military’s interests aren’t the same as the interests of Egypt’s oligarchs (who all made their wealth in the Mubarak era) or even necessarily in the interests of Egypt generally, but rather to protect their own wealth and interests. Who blocked Gamal Mubarak and his band of economic liberals in the mid-2000s? The military.

The conflict between Egypt’s private sector, on the one hand, and the economic nationalists within its military and otherwise within the ‘deep state,’ on the other hand, now seems like the dominant paradigm that will define the El-Sisi presidency, at least initially. Color me cynical, but it doesn’t seem like the economic liberals will win that fight.

I used to call the rise of El-Sisi the ‘re-Mubarakization’ of Egypt, but that’s wrong — the Mubarak era balanced the military against the economic elite. In the El-Sisi era, it’s hard to see how any private-sector or even a strong bureaucracy might balance the influence of the military, especially early on in an El-Sisi administration.

Long-term planning. El-Araby talked about establishing a program for Egypt’s economy between 2015 and 2030. That coincides with statements that El-Sisi has made about the need for sacrifices from the next generation (or two!) of Egyptians. Regardless, that seems like an inadequate timeline for a country that’s been through a revolution, an experiment in Islamic democracy, a counter-revolution and a brutal military dictatorship in just over three years — and where the median age is 24 years old. Egypt’s economy needs to produce results now, not in 16 years.

Fiscal sustainability. El-Araby obviously understands all of the problems that Egypt faces. It has a rising public debt (above 85% of GDP), an unacceptably high budget deficit that was around 14% of GDP in 2012-13 and will be around 10% of GDP in 2013-14. In the Morsi era, loans from Qatar smoothed the Egyptian treasury; today, in the El-Sisi era, loans come from Saudi Arabia and the United Arab Emirates instead. El-Araby noted that Egypt’s tax revenues, which he said are currently just 15% of GDP (that’s pretty low by the standards of the developed world — by contrast, Denmark’s revenues are 47.7% of GDP, France’s are 43.9%, the United Kingdom’s are 36.1%, the United States’s are around 24% to 27%).

Al-Araby called fiscal sustainability, in particular, ‘magical,’ and he noted the efforts to introduce a VAT of between 10% and 12% to replace the existing sales tax.

But as El-Araby announced last month, Egypt’s GDP growth is still much lower than it needs to be (he revised estimates downward from around 3% to 2%).

Reforming the public sector. El-Araby also discussed the need to ‘reform’ state-owned enterprises and then ‘invest’ in them. I’m not an economist, so it’s hard for me to read between the lines, but I interpreted this as, ‘we tried privatizing state-owned enterprises in the 1990s, it met with protests and fierce resistance, so we can’t try that now. Instead, we’re going to our best to align their incentives with the market, and we’re especially going to try to align wages with efficiency.’

Energy subsidies. Perhaps the most stunning statement Al-Araby made was this:

We don’t have an energy strategy.

It’s true. Egypt’s recurrent brownouts are a symbol of the inefficacy of its government to introduce real reforms. Unsustainable energy subsidies that gobble up more than one-fifth of Egypt’s budget — around 210 billion Egyptian pounds ($17.2 billion) last year.

El-Araby has been at the forefront of the movement to roll back those subsidies in a progressive manner, by eliminating subsidies but providing ‘smart’ cards that perpetuate subsidies to those most in need. But as Venezuela can attest, that’s an incredibly difficult policy to implement. Subsidies tend to benefit the middle classes and the wealthy disproportionately more than the working class and the poor that they were initially designed to assist, and revoking subsides can cause massive political upheaval.

Leave a Reply

Your email address will not be published. Required fields are marked *