Egypt’s Economy: Bringing The State Back In

Secretary of the Treasury Jack Lew visited Cairo on Monday and no one seemed to notice or care. That’s probably because of the awful terrorist attack that took the lives of at least 31 Egyptian conscripts and reportedly two officers in the Sinai Peninsula over the weekend. Lew’s visit was not going to deal with any number of the hot topics on the U.S.-Egypt agenda—human rights, military and economic assistance, press freedoms, and the ongoing fight against extremism, anyway. “Economic statecraft,” it seems, is just not that sexy. Exciting or not, it is important, especially since the Obama administration seems to have come to the conclusion that the United States can be most constructive on Egypt through policies that focus on the economy. There is an assumption among many in the Beltway policy community that at least on economic issues and their solution, the United States and Egypt can agree. Working with other countries to aid their economic development is a good idea, of course, but I wonder whether, like so much of the conversation between Washington and Cairo, American and Egyptian officials have very different ideas about the right approach to Egypt’s economic problems. Don’t be surprised, then, if the economy becomes another point of friction, or if Egyptian decision makers just ignore Washington’s advice.

It should not be a surprise to anyone paying attention that the Egyptians are not in favor of private sector-led inclusive economic growth and the range of neoliberal economic reforms that the United States and the IMF deem necessary to get there. They never really were. Anwar al-Sadat’s Infitah (opening) created a commercial economy without the institutions of a market economy. When he came close to implementing an IMF-recommended subsidy reform on basic foods in 1977, the ensuing demonstrations shook the regime. Hosni Mubarak resisted American economic advice mightily until the early 1990s before relenting and pursuing IMF reforms for about six months before it got too hard politically. It was not until 2003 when Gamal Mubarak (and a number of other advisors) convinced his Dad to kinda, sorta float the exchange rate. The following year, Mubarak appointed the so-called economic “Dream Team” of Ahmed Nazif, Mahmoud Mohieldin, Rashid Mohamed Rashid, and Youssef Boutros-Ghali to guide Egypt’s first-ever serious effort at neoliberal economic reforms. The resulting macroeconomic performance was impressive, but it came at a cost—the impoverishment of many Egyptians. Crony-capitalism and the rise of the puffed-up businessmen-politicos who populated Gamal’s National Democratic Party Policies Secretariat characterized that brief era. For President Abdel Fattah al-Sisi and his mostly military advisors, the late Mubarak period was a distortion of a political and economic order that had worked (i.e., it had maintained stability) for the previous five decades. Now they are returning to it. It is true that Sisi embarked on subsidy reform, especially in the energy sector, there have been price hikes on certain goods, and the bourse is suddenly buoyant with investor confidence, but the overall picture suggests a move back toward a more state-oriented economic approach. Here is why:

Taken together, these factors suggest that the Egyptian leadership continues to put a premium on what they have always believed to be most important: stability. And just as Mubarak learned the lesson of reforms from the 1977 bread riots, Abdel Fattah al-Sisi has learned the lessons of the economic reforms of the latter Mubarak period and has decided to move Egypt back to a place where economic rationale was secondary to the political and social goals of the state. One could argue the merits of this approach, but it reveals how far apart Washington and Cairo are on the seemingly non-controversial, though highly consequential, issue of Egypt’s economic development. I have no idea about the quality of Secretary Lew’s conversations with Egyptian officials, and I do not know if he has ever had the pleasure of visiting Cairo before, but I hope he and his staff had the chance to visit some of Egypt’s first mega-projects—the Pyramids.