January 22, 2012, Sunday

The greatest danger facing Egypt: Economic crisis

Egypt, which has managed to make it through the elections for its People’s Assembly without experiencing a crisis, will hold elections for its Shora Assembly in the coming days, followed by the presidential elections in June of this year.

Mohamed ElBaradei, the former head of the International Atomic Energy Agency (IAEA), has withdrawn his nomination for president to make way for others. It seems that the presidential elections in June will take place as planned.

And so it does in fact appear possible that the first democratic formation of a government in Egypt will be possible, without any face-offs between the Muslim Brotherhood and the military, and with consensus reached in the coming months between political parties.

But the economic crisis definitely tops the list of topics. The economic challenge occupies the minds of everyone, from the High Military Council, which is currently in power, to the Muslim Brotherhood, and from the Salafis to the various liberal parties.

The economic crisis is rearing its ugly head in nearly every area imaginable in Egyptian life these days. The shortages of petrol and natural gas in recent days are some of the clearest examples of this. And while Egypt’s exports have dropped by nearly 50 percent, the official drop in tourism revenues is said to be 33 percent. As for the Egyptian stock market, it has lost almost 50 percent of its value.

These numbers, which directly concern the poor citizens of the nation, are alarming. While inflation has gone up by 10 percent, the unemployment rate has also increased quite rapidly. Although official statistics have the unemployment rate at some 12 percent, many assert that it is in fact much higher, particularly among the younger generation of the nation. It should also be pointed out that Egypt, with its population of 85 million, has one of the highest birth rates in the greater Middle East.

The generally low wages in Egypt are about as serious a concern as that of unemployment these days, especially given the skyrocketing inflation. Both normal Egyptian state workers as well as most workers in private institutions earn some $100-150 a month. What this means is that most workers have a second or even a third job somewhere else.

Government subsidies on goods such as natural gas, petrol, electricity, water and some basic food items (bread, rice, cooking oil, etc.), thus, are of great importance to nearly 80 percent of Egyptian society. Eliminating or even cutting back on any of these subsidies has the potential to cause great problems across society.

In order for Egypt to make new investments, to divert funds to its structural foundations, to carry out reforms in areas such as healthcare and education, it needs to find financial room in its budget. And in order for this to happen, it must find a solution for the more than one-third of its total budget that currently goes towards subsidizing goods for the people of the nation.

Unlike many of its neighbors in the region, Egypt is not rich in natural resources, which is why it has an urgent need for foreign investment and tourism revenue.

And in order for foreign investment and tourism revenue to start pouring in, political stability must be achieved as soon as possible in Egypt. Rhetoric coming from the Muslim Brotherhood and the Salafis must be heeded very closely these days.

For foreign investors, Egypt has a rare status within the greater region of the Middle East. Its cheap labor force, geographical location and trade agreements with neighboring countries all give it important advantages.

As for tourism, it is Egypt’s great unused asset so far. With historic and touristic sites too numerous to count, Egypt could easily increase its revenue from tourism to many times of what it currently earns simply by making some new investments and taking certain new precautions.

In addition, some steps -- or even leaps -- made in areas such as information technology and the automotive, construction and textile industries would make it possible for the country to overcome the economic crisis much more easily.

Egypt, which has been forced to knock at the door of the International Monetary Fund (IMF) as a result of its economic crisis, should be exceedingly careful when it comes to considering the solutions that this particular institution will no doubt offer. The IMF -- which never ever seems to help in bringing about permanent solutions -- should not be allowed to control Egypt’s future as the result of a few billion dollars it might give the country.

It would be a far better idea for Egypt to look towards alternative funds such as Gulf capital. If in fact Egypt is able to bring about political stability, there would be no barrier keeping this capital from flowing into Egypt.

In the diplomatic arena, there are two subjects that look to make things difficult for Egypt. The first is the Palestinian peace process, and the second is the likely-to-occur disagreement with Ethiopia on the subject of water. On the matter of the peace process, Egypt has been leaning towards trying to foster peace between differing Palestinian groups and seems to be headed in the right direction in doing so. What this does appear to portend, though, is tension with Israel, at least in the short term.

The topic of Ethiopia is a vital one for Egypt. The nation meets nearly all of its water needs from the Nile River, an important part of which runs through Ethiopia, and it is thus critical that it reaches an agreement on water with Ethiopia. The Grand Ethiopian Renaissance Dam project, started by Ethiopia, would limit the available water supply for Egypt, which would in turn directly and deeply affect life in Egypt. For this reason, it does not seem likely that Egypt will ever approve of the project.

On the political, economic, and diplomatic fronts, Egypt is going through some hard times these days. Either way, the stability Egypt is able to achieve -- or the instability it may fall victim to -- will no doubt deeply affect the entire region.

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