Cairo, Asharq Al-Awsat—The Egyptian economy faces three main stumbling blocks on the road to a recovery, according to a number of economic experts who spoke to Asharq Al-Awsat.
The experts agreed the country’s low productivity—particularly the decline in tourism after the 2011 revolution—combined with the ripple effects of the 2008 global financial crisis, insecurity and political instability, are the key issues to be tackled by Egypt’s next government in its efforts to get the economy back on track.
Egypt now faces a 240 billion Egyptian pound (34 billion US dollar) budget deficit, almost 14 percent of gross domestic product (GDP), with government debt reaching 89 percent of GDP, largely stemming from Egypt’s 21 billion dollar subsidies bill in the 2012–2013 financial year.
Economist Sherif Mukhtar said: “Egypt is going through an economic crisis in all sectors, and needs to increase productivity because it is lower than population growth, which results in an increase in the budget deficit and the balance of payments.”
He added: “The problem can only solved by an efficient system of productivity, especially in the tourism sector, which in 2010 provided revenues of 13 billion dollars.”
Tourism contributed 11 percent of the country’s GDP and 20 percent of foreign currency reserves in 2010—as well as accounting for 12 percent of the country’s direct and indirect employment opportunities, according to Central Bank of Egypt figures. Tourism revenues dropped as low as 8.8 billion dollars in 2011, recovering slightly to 10 billion in 2013. However, this key sector is still suffering, largely due to violence in once-popular tourist areas such as Sinai.
Yaman Al-Hamaqi, a professor of economics at Cairo’s Ain Shams University and a former under-secretary of the economic committee at Egypt’s upper house of parliament, the Shura Council, told Asharq Al-Awsat she believed the Egyptian economy was still “in crisis,” due in part to the continuing fallout from the global financial crisis and the political events which have rocked the country since the overthrow of president Hosni Mubarak in 2011.
“The Egyptian economy has been in crisis since before the revolution and has not recovered from the effects of the global financial crisis of 2008,” she said.
With a relatively underdeveloped financial services sector free from the toxic assets that caused the global financial crisis in 2008, Egypt was largely shielded from its initial negative effects. However, later price shocks, dwindling export receipts—Egypt’s largest trading partner is the European Union—and declining foreign investment inflows led then-prime minister Ahmed Nazif’s government to issue a 15.5 billion Egyptian pound stimulus package, funded by a temporary reduction on fuel subsidies, increasing sales taxes on a number of goods such as cigarettes, cement and petroleum products and freezing some tax exemptions on Treasury bills and economic free zones.
Hamaqi, however, branded these moves as “ineffective,” and the latest in a long line of unsuccessful measures and mismanagement.
“The same applies to the agriculture sector, which lacks clear vision and is not related to reality,” she said. “Agricultural land in Egypt is being eroded, which is the same situation as before the revolution. Back then there was foreign investment and growth, but now direct foreign investment has dried up.”
But Hamdi Abdelazim, a professor of economics and former head of the private Sadat Academy university in Cairo, said the Egyptian economy had been temporarily buoyed by Gulf deposits since the ouster of former president Mohamed Mursi last July.
“The crisis continues, but after the June revolution, its severity has decreased as a result of the aid given to Egypt by Arab states, especially Saudi Arabia, the United Arab Emirates and Kuwait,” he said.
The three Gulf states have made deposits into Egypt’s central bank of around 12 billion dollars since the ouster of former Mursi last July 3. This has helped boost foreign currency reserves, which plunged steadily from 36 billion dollars before Egypt’s revolution in 2011 to 13.424 dollars in March 2013, an amount barely enough to cover three months of imports for the world’s largest importer of wheat, and whose imported subsidized fuel bill amounted to 10 billion dollars in 2013.
“The aid came at a time when there were shortages in fuel and energy resources, as well as a disruption to the electricity supply. As soon as the aid arrived, the disruption in the electricity supply ended and the queues for diesel and other fuels have disappeared,” Abdelazim added.
“As a result of borrowing and deposits which come from Arab countries . . . foreign currency reserves [have risen] to 17.3 billion dollars from 13.5 billion before the revolution,” he said.
In terms of other inflows of foreign currency—foreign direct investment and tourism—Abdelazim said these had dropped due to the “violence and terrorism” which has affected Egypt since 2011.
Speaking of steps needed to help the Egyptian economy back on track, Hamaqi believed deep-rooted and wide-ranging changes were needed. “We need to reorder our priorities, at the top of which is human development,” she said. “Egypt has promising possibilities and opportunities, and I as a university professor can give assurances that the Egyptian youth have intellectual ability and are able to acquire skills and learn—a wealth that improves investment in Egypt.”