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Analysis

Egyptian Economy, Challenges Ahead

Thursday 12 July 2018
Egyptian Economy, Challenges Ahead

Alwaght- The Egyptian economy did well last year by growing 5.4 percent, ranking high among the African economies. But the people have begun to bemoan the government’s financial and monetary policies this year which reports suggest have pushed the inflation rate up to 14 percent in June.

The government increased the water price 44.4 percent, the electricity 26 percent, and the metro tickets between 50 and 150 percent this year. President Abdel Fatah el-Sisi has defended his measures arguing the nation’s economy is moving in the right track.

Egypt is a country of 100 million population, with a gross domestic product of over $336 billion. The country has been grappling with economic, political, and security hardships since 2011, the year a popular revolution ousted the longest-serving president Hosni Mubarak.

The presidential election brought to rule el-Sisi in 2013, who tried to improve the people’s living standards by improving services. A major move was to put an end to power shortage, a fundamental problem that challenges the people’s life and hampers chances of sustainable economic boost.

The president also resorted to local potentials for energy, a step that led to the start of production in the giant Zohr gas filed in the Mediterranean in December 2017.

Cairo leaders also worked hard to attract foreign investment to fight deep-rooted unemployment, as experts warn that in the upcoming decades, population increase and a shortage of job opportunities and services will contribute to the destabilization of the nation.

By 2050, the population will hit 150 million, setting off the alarm bells to the leaders. The government, addressing the predictions, has started building new cities across the country, including a $45 billion housing project in the capital’s east. Egypt also signed a contract with Russia to build a nuclear power plant. That is beside a program of Suez Canal expansion, all aimed at strengthening the economic infrastructure.

But climate change is casting its shadows on Egypt as it does on other parts of the world. The rain patterns are changing, meaning that they pose a real threat to the farming industry in the Nile Delta as the leading area providing the country with food.

A government policy to allow the national currency pound’s rate to float freely, the economists say, has deteriorated the economic status of the middle and lower classes. The government argued that free floating will bring back the escaped foreign capitals. But the plan bore the reverse as the pound lost half of its value and the price of services, including food, fuel, and public services jumped up. Reports hold that July 2017 inflation rate hit 34.2 percent. It has relaxed to 17 percent but a 14 percent hike in value-added tax made it still hard for poor people to buy food.  

The measures did not fully meet the government’s expectations of the attraction of foreign investment, which was reported to be $7.92, meaning over $2 billion lower than the projected $10 billion.

Challenges ahead

Despite some optimistic expert forecasts for the Egyptian economy, the growth is facing some roadblocks, including the rapid population growth, inefficient family policies, and underdeveloped infrastructure.

Another challenge is el-Sisi's authoritarian rule that eliminates the opposition and restricts the media. The analysts maintain that el-Sisi’s authoritarianism is much worse than that of the ousted dictator Mubarak. The government’s grip on media outlets chokes any voices detecting the problems and criticizing the inefficient policies and corruption.

On the other side, the armed forces’ presence in huge projects inflames concerns about the future of the private sector in the nation. The government is broadening its role in the energy market. New oil and gas reserves could meet the household and industrial needs and also bring cash to the country if energy production expansion projects are launched. But huge energy incomes can slacken the government’s resolve to strongly continue reforms. For example, the government subsidy cuts could be delayed, and it could drive out the plan to privatize the natural gas industry all to tighten its grip on the energy sector.

A government enjoyment of the oil and gas exports income, which has increased over the past four years on the strength of global energy giants’ investment, many warn will create a rentier government, a more autocratic regime, and a state-controlled economy.

Another trouble setting up hurdles ahead of a smooth development of Egypt is ongoing insecurity. Since 2011, the country’s Sinai Peninsula has been a stronghold of fundamentalist militants and terrorists. If security investment does not keep pace with other sectors, Egypt will have to spend immensely every year to prevent more destabilization of Sinai.

The challenge negatively affects tourism industry, a major foreign cash magnet in the nation’s economy. The insecurity since the revolution forced the country into a stage of instability, dealing a blow to the economy. A Russian passenger plane crashed in Egypt in 2016 as a result of the ISIS terrorist group’s bomb, damaging Egypt’s image as a tourist destination.

After the incident, Russia and then Britain suspended flights to Egypt, causing a major tourist intake cut, though an improvement in security conditions restored tourist flow to Egypt. In 2018, the tourists' arrival grew 37 percent in comparison to 2017. Since the start of the year, some 2.83 million foreigners visited Egypt, according to reports. This, in turn, restored the incomes, which grew 83.3 percent reaching $2.2 billion.

Yet another problem is the national currency value loss. Allowing the pound rate to float freely cut its value by 50 percent against the dollar in 2016. In April, the government issued euro and dollar-dominated, rather than in national currency, bonds, making the local investors concerned about their country’s currency value loss.

And the fifth challenge of Egypt’s economy is debts. Up to the end of 2017, the government’s debts to GDP were reported to be 101.2 percent. Reports suggest that state debt to GDP in 2016-2017 fiscal year reached 33.6 percent up from the 16.6 of the year before. A major part of the debt is to the World Bank and International Monetary Fund.

Despite all worries, the government measures appear to have put the economy on the healing track. The GDP was reported 5.3 percent in the last quarter of 2017. It was 2.1 percent in 2012. Unemployment dropped to 10.60 percent in this year’s first quarter, 1 percent down from 2017. Global research centers predict 6.63 percent growth for Egypt by 2026, the highest growth rate putting it after India and Uganda.

 

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Egypt Economy El-Sisi

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