Egypt on the brink
Egypt faces its worst crisis in living memory as its government continues to spend lavishly with little concern for the public
Labelled an albatross by critics, Egypt’s new capital carries an estimated cost of $58 billion at a time of growing concerns over the country’s economic and political stability. Image source
In 2011, mass protests overthrew the regime of Egyptian President Hosni Mubarak over a host of issues, including corruption, high living costs, and high unemployment. Over a decade later, these issues persist in Egypt, exacerbated by an increasingly unstable Middle East region. With a massive and growing populace, an emerging food crisis, and a heavy reliance on the international community to sustain its economy, Egypt stands on the brink of a crisis that could dwarf the so-called Arab Spring.
A perfect storm of economic challenges
Rising tensions in the Middle East have devastated the Egyptian economy, especially its foreign currency sources, which are vital to its ability to import goods. For example, Houthi attacks on the Red Sea have caused Suez Canal revenue to fall by 40–50% by this February: before this, the Suez Canal brought in around $10 billion annually and contributed some $8 billion to the national budget. The regional conflict also weighs Egypt’s economy in other key areas.
Israel’s invasion of Gaza has negatively impacted the country’s tourism sector – which previously generated around $13 billion in foreign currency annually – with bookings down nearly 25% in November. Although revenue has improved slightly in recent months, the lingering effects of regional instability and the COVID-19 pandemic continue to weigh heavily on Egyptian tourism. Finally, Israel halted natural gas exports at the outset of the war, with exports to Egypt falling by over 50% in the final quarter of 2023. Egypt is home to both of the Eastern Mediterranean gasification plants and previously benefitted from rising demand in the European market following Russia’s 2022 invasion of Ukraine. Although exports rose by 28% in total last year, and Israel plans to expand its production capacity, the conflict in Gaza continues to weigh on exports to Egypt, depriving its economy of much-needed foreign currency.
In addition to a substantial drop in revenue, Egypt’s domestic economic situation is poor, underpinned by currency woes and a cost of living crisis. Although the Egyptian economy has grown substantially since the 2011 revolution, the country’s standard of living continues to erode with ne. Moreover, much of Egypt’s growth stems from support from other Arab states: last September, the central banks of Egypt and the United Arab Emirates (UAE) finalized a $1.36 billion currency swap deal to help bolster Egypt’s struggling economy. In 2023, the government refloated the pound as a condition of the $3 billion bailout from the International Monetary Fund (IMF) in response to an estimated $20 billion outflow of cash from the country since 2022.
Worsening living standards
Cash outflows and currency manipulation have contributed to astronomical inflation in the country, with the urban inflation rate reaching 35.7% in February, up from 29.8% in January. “It almost makes me grateful that the mosques are still free,” said Safaa Youssef, a 48-year-old mother of three who lives in a city just east of Cairo. To add to this stress, Egypt is highly dependent on imported food, and the ongoing war in Ukraine is heavily impacting its ability to import wheat, other staples, and fertilizers. Egypt’s population has grown by over 28 percent to nearly 113 million over the past decade: with food prices up 45% last year, there are questions as to how the country will continue to feed its population. Last year, President Sisi angered critics when he said in a speech, “If progress, prosperity, and development come at the price of hunger and deprivation, Egyptians, do not shy away from progress! Don’t dare say: ‘It is better to eat.’”
Despite economic growth, unemployment is a significant issue. Last year, the International Labor Organization estimated that 90% of unemployed people are under 30 years old and that nearly 35% of young people with secondary or higher education are unemployed. Following decades of massive population growth, roughly 60% of Egypt’s population is now under 30 years old. These factors have contributed to growing concerns of unrest in the country.
Despite these severe economic challenges and a heavy reliance on foreign creditors, Egyptian authorities continue to spend vast sums of the country’s wealth on ambitious construction projects. A new capital city will carry an estimated cost of $58 billion and include Africa’s tallest building, a crystal pyramid, and a disc-shaped presidential palace. It is the largest of five cities the country is currently building, with dozens more in the planning stages. In addition to concerns as to how this construction will be financed, there are also concerns about whether these cities can be filled at all. According to some estimates, around 60% of the country lives at or below the poverty line. Moreover, a recent study concluded that systemic corruption in Egypt’s construction sector has resulted in dozens of deaths due to building collapse. Globally, the construction sector is highly susceptible to corruption and is a frequent means by which elites move public wealth into private hands and often into overseas bank accounts.
The New Administrative Capital’s CBD, pictured last year. Image Source
An emerging political crisis
A lasting legacy of the British colonial era, Egypt’s military has effectively governed the country for most of its post-independence history. It also controls much of the country’s economy, including the new capital project. This level of military control gives the Egyptian people few other places to look when placing blame for the challenges they face in their daily lives. Egyptians tend to view their government as highly corrupt, with the country’s corruption perceptions index scoring just 35/100 last year. Last year saw several cases of large-scale government corruption exposed with even the Illicit Gains Department, which is meant to investigate cases of official corruption, found to have accepted bribes during this time. Moreover, in light of the 2011 protests that brought down the corrupt government of Hosni Mubarak, there are growing concerns that the new capital is merely a means by which the government can prevent future mass gatherings that would have such an impact.
The regime’s foreign policy is another factor of concern. President Sisi’s government is considered to be quite friendly to Israel, and it has deepened Egypt’s ties to the Jewish state in recent years. However, the Israeli invasion of Gaza has brought about widespread sympathy for the Palestinian cause in Egypt. Although Sisi has attempted to capitalize on these sentiments by attending pro-Palestinian rallies, critics argue the president is diverting public attention away from the country’s growing food insecurity and other issues. Egyptian officials claim that they will not tolerate any attempts by Israel to expel displaced Palestinians into Egyptian territory and have moved tanks to the border over security concerns. However, with the government increasingly relying on the international community to sustain its economy, foreign governments could exert considerable pressure on Egypt to accept such a deal, with potentially disastrous consequences for a country with severely strained resources and a wary public. In this way, maintaining a balance between public opinion and those of the international community will likely be a severe challenge for the regime moving forward.
Egyptian tanks deployed to the border with Rafah. Image Source
Conclusion
Amid widespread economic instability and food insecurity, Egypt potentially faces its greatest crisis in memory. With regional tensions high and Israel determined to launch a ground force into the Gazan city of Rafah, Cairo is likely to remain faced with significant international pressure as well, especially as it continues to rely on international institutions for bailouts. Egypt’s balance between global and domestic interests and its own corruption will likely continue to create instability in the country. This instability could have severe global consequences from a humanitarian and geopolitical perspective.
Very informative article that is shadowed here in the Central USA, I now understand why Egypt is refusing displaced residents of Gaza.