The Government of Egypt launches its much-touted Egypt Economic Development Conference in Sharm El Sheikh this week, and has pulled out all the stops to lure foreign investors. In the wake of subsidy and investment climate reforms, improved growth rates, and new investments in infrastructure, Egyptian leadership is making the case that Egypt is open for business, and focused on creating jobs and opportunities for all Egyptians. Gulf countries are pouring billions into development projects. So is it a new day for Egyptians?
Not quite. Let’s not forget Egypt has been here before—and recently. The last years of the Mubarak regime were characterized by Egypt’s highest annual growth rates and a high of $13 billion in foreign direct investment (compared to about $4 billion now). Egypt climbed the charts on the World Bank’s “Doing Business” index, even winning its “Most Improved” designation in 2008. Billions of dollars of donor aid and technical assistance, including from the US, achieved impressive results in terms of schools, hospitals, sanitation infrastructure, agricultural productivity, and the number of Egyptians receiving benefits. Nonetheless, these efforts failed to produce sustained development progress, shared prosperity, real transformations in the informal economy, or secure jobs for ordinary Egyptians. What they did do is tilt the economic playing field even more in favor of Egypt’s elites. Such inequity helped fuel Mubarak’s downfall but his eventual successor, President Abdel Fattah al-Sisi, doesn’t appear to be levelling things much.
Sisi imposed subsidy reforms on ordinary Egyptians but maintained assistance for industry (86 percent of energy subsidies accrue to the top quintile of the population). His draft investment law—which should have been passed before the conference—has been stalled by ministries whose interests are at stake. And while it offers some additional protections for foreign investors, Egypt’s domestic investment climate and labor market inefficiencies mean that fully seventy per cent of jobs created are in the informal sector, far more than regional peers and most developing countries.
Egypt’s military also has a grip on the economy that is unchecked and growing, as Sisi defaults to military enterprises to complete promised public works. The military has access to all undeveloped agricultural land, operates with tax-exempt and nontransparent status, and uses below-market labor, crowding out the private sector. And with its hands on the political, economic, and security levers of the country, Egypt’s military is unlikely to take actions that it perceives will inhibit its economic privileges, or those of regime friends.
The second reason Egyptians might not be holding their breath for prosperity is because the country’s institutions remain among the worst in the world. Egypt ranks in the bottom 20 percent of countries in the World Economic Forum’s 2014-2015 Global Competitiveness Index (119 out of 144). It’s in the bottom 10 percent on measures of government wastefulness and institutional accountability. For quality management of schools, it placed dead last, with Egyptian schoolchildren receiving one of the lowest standard educations in the world. Egypt’s inept and corrupt bureaucracy is hampering delivery of Sisi’s promised cash transfer and other social safety net provisions for the poor, risking further discontent among Egyptians.
Violence is on the rise, youth unemployment is at 30 percent, poverty at more than 26 percent, and trust in government officials at an all-time low. No investment conference—however generous the attendees—can address those statistics alone. Fundamentally, Egypt’s bureaucracy must shift from collecting paychecks from public funds (supported by donors) and rents from the Egyptian public to institutions that are rewarded for how well they serve Egyptians and support the Egyptian public’s priorities.
Sisi wants the world to believe that the only thing standing in the way of Egypt’s economic success is finance and investment. But no amount of external support and investment will spur Egypt’s development until these institutional barriers are addressed. Sisi also wants the world to believe that Egypt’s economic challenges are distinct from its political ones—and some of his allies push the same view. But when the real constraints are insider privileges, burdensome domestic regulations and entrenched institutional corruption, only open political systems that give citizens the means and information to hold institutions and leadership accountable can alter incentives for reform.
History demonstrates that it’s only when elites feel real pressure from the public that they make concessions to share prosperity more broadly. Sisi’s shutdown of civil society, of media, of protest, of most channels for citizens to have a role in holding government institutions accountable means that Egyptian institutions feel no such pressure to change. Furthermore, sustained reform relies on broad political consensus founded on inclusive politics, such that the political costs of reform—and the commitment to follow through—are borne across a larger share of political leaders. Egypt’s current politics demonstrates no such inclusion.
Sisi needs to deliver on his promises for a renewed Egypt, but if his current plans are any indication of what he’s willing to do, Egyptians will be kept waiting for their new day.