A few years before the uprisings that rocked Egypt and the broader Arab world, a young Egyptian blogger offered a biting assessment of the state of the economy, writing that he wished to live in the “macro world” because “everyone says the numbers look great.” His point was clear: yes, maybe the numbers on growth and investment look good and fund managers tout Egypt as a “hot emerging market,” but economic life for the ordinary Egyptian remained sluggish, uncertain and precarious.
Fast forward about a decade later. Once again, the numbers are looking good. The International Monetary Fund sees 5.5 percent growth for Egypt in 2019, considerably higher than the regional average of 1.3 percent, and the latest World Bank Egypt economic update notes that “growth has been robust and broad-based.” Meanwhile, emerging-market debt investors have been piling into the Egypt trade, Standard Chartered Bank declared Egypt would be one of the top-10 largest economies by the year 2030, and a Bloomberg analysis tagged Egypt as one of the two most resilient of emerging markets in a global trade-war environment.
While bankers and fund managers are listing Egypt in the “next hot thing” category, unemployment hovers around nine percent and inflation remains doggedly stuck at around 14 percent. While Egypt’s economic reforms have satisfied the IMF with their usual mix of cutting state subsidies and lowering public debt levels, most Egyptians remain in the seemingly never-ending cycle of trying to catch up with rising prices amid an environment of stagnant wages.
Dig deeper into the World Bank report on Egypt and you’ll see the crux of the matter. “Social conditions remain difficult as real incomes have been eroded by inflation,” the Bank notes. What’s more, the global lending body says that “participation in the labor market and the formal employment rate have both been declining since 2010” and “the erosion of real incomes continues to be a concern.” This declining participation in the formal labor market combined with Egypt’s long tradition of a robust informal market makes the relatively modest unemployment number less meaningful.
Egypt’s policymakers face a key dilemma, and it should be a familiar one. After all, it’s a similar dilemma faced by President Hosni Mubarak and his policymakers and by “hot emerging markets” everywhere. Back in 2008, Egypt was attracting record amounts of foreign direct investment, Egyptian ministers were feted at Davos and the North African state was seen as an emerging market on the rise. A 2008 report issued by the IMF noted that Egypt’s “bold reforms” had sparked the country’s best performance in years, making it “one of the Middle East’s fastest-growing economies.”
Fast growth, however, does not always mean sustainable job growth. Instead, it often means rising short-term inequality. That is precisely what happened in Egypt on the eve of the uprisings and it is what is happening now.
But Egypt is not alone. Other “hot emerging markets” like Argentina and Turkey faced similar dilemmas: growth looked good, investors flocked in, magazine covers touted “the next hot thing,” but job growth was slow, inflation rose and people wondered why they couldn’t live in “macro world.” As things began to unravel, the currency wobbled, debt levels piled up and investors headed for the exit. Cue political instability.
This is not to suggest that Egypt is on the verge of another uprising. A variety of factors contribute to political upheaval, with economic conditions often a leading, but not sole, indicator and there are some bright spots over the horizon.
One of them is investment in infrastructure. In fact, Egypt has spent more on power projects than any other country in the Middle East and North Africa region, according to MEED Business Review. In a region where Gulf Cooperation Council states generally top spending tables on infrastructure, Egypt’s top ranking over the past five years is notable. This is the sort of infrastructure spending that can underpin private-sector growth.
And there’s some good news there too. According to a report in Al Ahram Weekly by Sherine Abdel Razak, overall earnings by Egyptian private-sector companies were up by 10 percent in the first quarter of this year. This is decent private-sector earnings growth, but the role of Egypt’s military-backed companies in the economy has been growing at an alarming rate, possibly masking the true potential of Egypt’s private firms.
Egypt’s economic future matters immensely not only, of course, to its 100 million inhabitants, but also to Africa and Europe. A thriving and prosperous Egypt would give a powerful boost to North Africa, the Mediterranean region and East Africa, as well as the broader Middle East. For now, the world can handle a flailing Egypt still trying to find its footing, trying to make its “macro world” numbers work better for its citizens. On the other hand, a failing Egypt with a cratering economy would pose systemic risks for the Mediterranean region, Europe and the wider Middle East.
There are positive economic signs in today’s Egypt, but those signs must deliver results sooner rather than later to build a constituency for reform. It’s not only the future of Egypt that is at stake.
Afshin Molavi is a senior fellow at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies, and editor and founder of the New Silk Road Monitor.