Egypt: Back to the future

Egypt: Back to the future
Analysis: Neo-liberal economic reforms have led to some economic growth, but the much-lauded economic conference in Sharm el-Shiekh this weekend will do little for the vast majority of Egyptians.
5 min read
Foreigners have long been coming to Sharm el-Sheikh with money in their pockets [AFP]
Today, Egyptian officials and potential investors will begin filing into the spacious meeting rooms of the Maritim Jolie Ville conference center in Sharm el-Sheikh.

The resort town is set to host the three-day Egypt Economic Development Conference (EEDC), a flagship government initiative to spur renewed investment in the country of some 90 million.

The tagline? Egypt The Future.

Hundreds of businessmen, analysts, and journalists from Egypt, the Gulf States, and as far away as India and Japan will rub shoulders with the likes of IMF head Christine Lagarde and US Secretary of State John Kerry, who will be meeting with Egyptian President Abdel Fattah al-Sisi on the sidelines.

The Sisi government has been pulling out all the stops in generating hype for the summit, proposed by the late King Abdullah of Saudi Arabia last summer as a donor conference.
     There is even a phone app to set up meetings and arrange 'Brain Dates' between investors.

The Central Bank of Egypt took steps to reduce foreign currency risk for investors.

There is even a phone app to set up meetings and arrange "Brain Dates" between investors.

Hisham Abbas, the 51-year-old pop star, has released a promotional song entitled Masr Btnadikom ["Egypt is calling you"] in Arabic, English and French.

And lest anybody wonder about the potential for government corruption, pro-regime paper al-Watan was reportedly forced to change a Wednesday story about government tax avoidance to an article lauding the EEDC's efforts towards an Egyptian economic revival. 

Building momentum

Underlying such heavy-handed efforts to control the message are some clear economic successes.

GDP growth has slightly improved, from 2.2 percent in 2013-2014 to a projected 3.8 percent for the current fiscal year. Egypt proved the best destination for stock investors in 2014, while in February the EGX30 stock market benchmark hit its highest level since 2008.
Check out "Egypt is calling you"
by veteran pop star Hisham Abbas

Likewise, the government has made some effort towards reforming fuel subsidies, which took up some 20 percent of public expenditures between 2008 and 2012, while tightening up the country's porous tax regime.

Just a week ago, Sisi's cabinet approved a new investment law that would better protect foreign investments within the country, going some way to allay investor fears regarding political change and legal challenges.

The government has also announce a slate of mega-projects, most notably a passing lane for the Suez Canal - a top Egyptian money earner - that will reduce travel times and boost the volume of shipping paying the Canal's multi-million-dollar tolls.

A grim picture from below

While the conference may spark some momentum in the upper reaches of the Egyptian economy, it is far from clear that the benefits will "trickle down" to much of Egypt's 90 million-strong population.

Thus far, it is mainly the government's austerity measures have fallen heavily on the poor - increased prices for fuel and food and larger consumption taxes on cigarettes and tobacco.

     The conference will focus on securing the kind of high-end investment that has driven profits but not employment.

Unemployment remains high at some 13 percent, while youth unemployment in particular spiked from 23.7 percent to 29 percent between 2013 and 2014.

Securing jobs - and stable income - for Egyptians is the key economic challenge for the government, yet most of the conference will focus on securing the kind of high-end investment that has driven profits but not employment.

A recent report by the German Institute for International and Security Affairs cautioned that the EEDC "will not initiate any sustainable economic transformation", as the Sisi regime "leaves too many structural problems untouched".

Tellingly, representatives from banks and real estate companies dominate the testimonials on the EEDC website.

Furthermore, a damning study by the Egyptian Center for Economic and Social Rights took on the mantra of pursuing foreign direct investment as the solution to Egypt's economic problems.

"Egypt has effectively allowed for attracting foreign investment to be an end in itself, rather than a goal for its economic and social development," the report noted, citing the Egyptian government's inability to hold multinational corporations accountable for tax dodging, corruption, or violations of workers' rights.

Trouble at the top

Even in the lofty heights of foreign multinationals, however, all is not well. Even if investors accept ongoing human rights violations by the government as the cost of doing business in Egypt, basic security is a real and present concern.

     If investors accept human rights violations by the government as the cost of doing business, basic security is a real concern.

Across the peninsula from the conference, the government is waging war against a militant insurgency. In Cairo, bombs have become a near daily occurrence on the street.

Street bombings have a way of smashing through even the rosiest statistics when it comes to investor confidence - especially when a string of attacks specifically targets multinational corporations and foreign-owned businesses.

As Carnegie's Amr Adly has pointed out, the lion's share of investment is likely to come from Gulf Arab investors, their delegations led by the heads-of-state of Bahrain and Kuwait, Emirati Foreign Minister Adullah al-Nahyan, and Saudi Crown Prince Muqrin bin Abdel Aziz.

With falling oil prices making past aid levels unsustainable - Saudi Arabia, Kuwait and the United Arab Emirates provided more than $10 billion in the 2014 fiscal year - Egypt's Gulf backers have strongly encouraged private investment as an alternative means of shoring up the country.

Even here, though, signs are not exactly encouraging.

A $40 billion housing project with UAE developer Arabtec is currently mired in uncertainty, with progress blocked by land disputes and unclear regulations regarding funding sources.

If the flagship builder of one of Egypt's closest allies is having trouble getting its project off the ground, it will be some time before any of the deals inked at the conference see the light of day.