EGYPT ONE YEAR ON

Raghda Gueneid, Research Associate, Middle East & North Africa
January 2012

Aish, horreya, adala igtimaiyya – bread, freedom, social justice - was what protesters called for during their 18 days of protests in Tahrir Square. One year later, how far has Egypt’s new ruler, the Supreme Council of Armed Forces (SCAF) met these demands?

The answer on all three points is: hardly at all.

In the year since the revolution started on 25 January 2011, Egypt’s economy has been at a standstill. After an unsurprising 4.2% GDP contraction in the first quarter of last year, growth has since averaged 0.3% - not exceptionally low by current Western standards, but well below the country’s former rates of 6-7% a year.

The main reason for this is political uncertainty. This has done nothing to encourage foreign direct investment, not least because any newly elected government is likely to reverse any decisions made by the SCAF.

Constant disruption has also undermined confidence.  Public sector workers have repeatedly staged strikes and sit-ins demanding pay rises, and political activists have clashed with security forces. These have both undermined normal business life and caused massive fluctuations on the stock exchange.

The country is also suffering a cash crisis. The SCAF has just recently asked the IMF for a loan, which the SCAF claimed would be unconditional. The country’s deficit has reached $24 billion; this has not only been caused by the current political turmoil, but also stems from the absence of a clear economic vision by the government.

One of the most visible symptoms of Egypt’s economic problems are the bread queues, which remain as ubiquitous today as they did before Mubarak’s departure. For most Egyptians bread symbolised the humiliation meted out by the Mubarak regime. Bread queues – where underprivileged Egyptians queued for hours outside state-owned stores to buy subsidised but very poor quality bread – were a daily occurrence and occasionally led to deaths due to asphyxiation and trampling. This is why many from the slums of Cairo joined their middle-class compatriots to create the ‘Egyptian Revolution’. Today, Egyptians also have to stand in line for fuel and cooking gas, which has also led to several casualties.

Nor have Egyptians seen an increase in their freedom. The SCAF has closed down human rights associations and arrested scores of political activists on questionable charges, such as ‘spreading rumours that corruption is still prevalent in the country’ and ‘attempting to create dissent between the people and the army’.

At the same time, the authorities have massively stepped up the use of military trials to pursue their opponents. Over the past year, military judges have tried and convicted more than 12,000 people, compared to some 800 in the entire 30 years of Mubarak’s rule. In hearings that usually last less than half an hour, many defendants receive arguably disproportionate sentences including – on occasion – the death penalty.

The Tahrir Square demonstrators’ third chant – for social justice – has been no more successful. More than 40% of the population live on less than $2 a day and many public sector workers have to survive on as little as $25 a month. All the same, demands for a ‘humane’ minimum wage and a staggered tax system have fallen on the SCAF’s deaf ears.

How does this affect foreign investors? While it is true that little new foreign investment has entered Egypt in the past year, none of the existing ones have pulled out. Nor have there been any attacks on foreign interests since the 25 January uprising. Egypt, with a population of 83 million, is MENA’s largest market, offering great advantages to investors such as cheap labour and raw materials. Also, despite an overwhelming Islamist majority in the newly-elected parliament, it is unlikely that the country’s favourable investment laws will be amended, especially given the current dire need for foreign capital.

The most positive result of the 25 January uprising has been the end of Mubarak’s crony capitalism, where the regime often imposed chosen local partners on foreign investors entering Egypt. Such local partners, always close to the regime, represented significant regulatory and reputational risks to investors. With most of these ‘cronies’ behind bars, foreign investors may look forward, at least for the time being, to a more transparent business environment in Egypt.