American Interest

Egypt on the Verge of Crisis?

Ravenel B. Curry III Distinguished Fellow in Strategy and Statesmanship
Members of the Egyptian police special forces patrol streets in al-Haram neighborhood in the southern Cairo Giza district on January 25, 2016. (MAHMOUD KHALED/AFP/Getty Images)
Members of the Egyptian police special forces patrol streets in al-Haram neighborhood in the southern Cairo Giza district on January 25, 2016. (MAHMOUD KHALED/AFP/Getty Images)

All is not well in Egypt, as the government implements unpopular austerity measures to shore up its floundering economy. As average citizens feel the pinch, they are increasingly blaming President al-Sisi as calls grow for mass street protests. Reuters reports:

Core inflation is at seven-year-highs, near 14 percent, as a foreign exchange shortage and a hike in customs duties bite hard in a country that imports everything from sugar to luxury cars.

The government raised electricity prices by 25-40 percent in August and is phasing in a 13 percent value-added tax approved by parliament in the same month.

As part of reforms aimed at clinching a $12 billion IMF loan needed to plug its gaping budget deficit, the government is also expected to cut petrol subsidies and devalue the Egyptian pound, prompting a further cycle of inflation in Egypt, where tens of millions rely on state-subsidized bread.

"Prices are rising daily, not monthly," said Gamal Darwish, a civil servant, as he queued to buy subsidized sugar in Cairo. […]

"This situation will push people to do bad things."

These days in the Middle East it is the dramatic disasters that get all the publicity: the bloodbath in Aleppo, the fight against ISIS, the war in Yemen, and the chaos in Libya. But the deterioration in Egypt’s economy could be the biggest story of them all. Three years after seizing power from the incompetent President Morsi, Egypt’s new rulers have not been able to stabilize the country’s economy. Violent attacks by radical jihadis have driven tourists away and spooked foreign investors. Low oil prices limit what the Gulf Arabs can do for Cairo, and the West is distracted both by its own problems and by lingering concerns about human rights under the Sisi government.

But as policymakers dither, Egypt is edging toward another major crisis. Tens of millions of Egyptians live on the edge of subsistence; without food subsidies they cannot feed themselves or their families. Inflation is eating away at the slender margin that keeps millions of others from destitution. The Egyptian people, with thousands of years of civilization behind them, are long suffering and patient, but even Egyptian patience has its limits.

Since the 1950s, the military has been the only institution with the discipline and power to rule Egypt, but the military has never been particularly good at economic development. The foolhardy socialism of the Nasser years degenerated into the rampant cronyism of the Mubarak era, and over time the country’s economic problems have become more deeply rooted in its political and social structure.

The hope now is that a new agreement with the IMF will shore up investor confidence and help the government stabilize the economic situation. But the painful changes that the IMF requires are already testing the limits of Egyptian patience. The military’s grip on the country remains firm, and maintaining domestic order remains the military’s core competence. But the status quo cannot endure forever. A return to economic growth, or at the very least an end to the deterioration, is what Egypt badly needs, yet there are few signs yet of positive change.

If the Sisi government should fail, and if the economy continues to weaken, major disruption cannot be ruled out. Already, rumors are growing of a massive day of protest on November 11. We’ve seen in Iraq, Libya and Syria just how easy it is for Arab societies to descend into chaos when rulers lose their grip. A social meltdown in Egypt would be a much larger and more consequential disaster than anything we’ve yet seen in the region.

The Sisi government is far from perfect, but no real alternatives exist. The next American president will need to make Sisi’s survival, and Egypt’s revival, major priorities.