CAIRO: After 100 days in power, President Abdel Fatah al-Sisi—who while campaigning had been criticized for what some considered a vague economic plan—has racked up more economic achievements than his Islamist predecessor Mohamed Morsi, who failed to fulfill a number of promises to the Egyptian people.
During his electoral campaign in Egypt’s 2012 presidential election, Morsi pledged to tackle a list of some of the most difficult issues facing the country within his first 100 days in power. Returning security, removing the piles of garbage in the streets, easing traffic and solving fuel and bread shortages were at the top of his agenda.
“Sisi’s success during his first 100 days of rule resulted from his political and economic will along with his independent decisions. He is not following any external or internal powers,” economic expert Dr. Abdel Rahman Taha told The Cairo Post.
He continued: “Egyptians’ sympathy with their leader and their deep desire to help him succeed despite his unpopular decisions has backed Sisi’s efforts to revive the economy since he took office.”
On top of Sisi’s economic reforms was the gradual removal of subsidies, which eat up more than 25 percent of the state budget. In June, Sisi approved a revised and tightened budget for fiscal year 2014-15 after the deficit was reduced to 240 billion EGP ($33.57 billion,) or 10 percent of GDP, while the budget draft predicted a 292 billion EGP shortfall.
Fuel prices rose by 40-78 percent for petrol, and 175 percent for natural gas overnight in early July following the lifting of subsidies. Many experts have warned that the consequences of the price hikes could harm Sisi’s popularity, but he insisted on carrying out the reforms anyway, which he called a “bitter pill.”
“The Egyptian government is taking serious steps in economic reform,” said Chris Jarvis, the IMF mission chief for Egypt, in his speech at the Euromoney Egypt Conference held in Cairo from Sept. 16-17.
Taha said the IMF had urged previous governments to apply economic reforms, but they were afraid it would trigger unrest. “But, Sisi has applied the economic reforms without pressures from the fund,” Taha said.
Mega project, domestic finance
After promising Egyptians he would announce a “pleasant surprise,” the president launched in August the Suez Canal expansion project, which aims to dig a new 72-kilometer branch of the major world waterway parallel to the current canal.
In hopes of raising 60 billion EGP to finance the mega project, the government issued investment certificates in local currency, and only Egyptian citizens are eligible to buy them.
The assigned banks selling certificates sold out of 64 billion EGP worth of the investment certificates within eight days. Many experts deemed this a success, and a symbolic second vote for Sisi, who had won a landslide victory in the presidential election held May 24.
Rolling blackouts plagued the Morsi administration in 2013, and in 2014 blackouts also began affecting major cities in March, ahead of the peak season.
When Sisi raised fuel prices he cut energy subsidies in the new budget by 10 percent, saving around 44 billion EGP. The budget amounted to 100.3 billion EGP, compared to 144 billion EGP in the previous year.
The government plans to remove energy subsidies completely within three to five years, Minister of Finance Hani Kadry has said.
Fitch Ratings said the recent oil price hike was an important step to reduce subsidies which will contribute to Egypt’s substantial fiscal deficit—a key rating weakness.
“Tackling subsidies is a key to reduce Egypt’s budget deficit, which we estimate is at 12.1 percent of GDP in 2013/14 [that ended June 30],” Fitch reported. The subsidy bill, mainly dominated by fuel products, accounted for about one-third of total spending in FY13, or 12 percent of GDP, according to data from the Ministry of Finance.
Meanwhile, the current government has started to repay installments of the $6.5 billion debt owed to energy foreign partners, including BG and BP, who threatened previous governments to halt their exploration and production activities until getting their dues. Minister of Petroleum Sherif Ismail announced in his speech at an economic conference on Sept.8 that Egypt will pay back $1.5 billion to foreign oil partners during the current month. The government has forged an agreement with foreign oil companies to pay their arrears in full by 2017, Al-Ahram reported July 22.
The government is also negotiating new deals for natural gas exploration to meet the growing demand, notably for running the power stations.
“Shrugging off bio-diesel is a catastrophe, while the needed labor and lands are available,” said Taha, noting that the oil-rich Gulf States, namely the UAE and KSA have already stated they depend on bio-diesel.
Financial aid from the Gulf allies propped up Egypt’s economy following Morsi’s removal. The UAE, Saudi Arabia and Kuwait pledged at least $12 billion in cash and oil shipments bolster the country faltering economy in July 2013.
After Sisi’s landslide election victory, the Saudi King called for an international donor conference, seeking to bring in multi-billion investments in Egypt. The Cabinet said the “Development Partners” conference will be held Feb. 15, 2015.
Egypt is currently holding negotiations with the United Arab Emirates to obtain an additional grant worth $3 billion, Al-Masry Al-Youm reported Sept.18.
The cash would be deposited in the Central Bank of Egypt (CBE), and part of the deposit would be allocated for repaying a $500 million installment to Qatar as part of its deposit, while the remaining $2 billion will be repaid later, the newspaper quoted a high ranking Egyptian official.
He added that the UAE deposit would also be used to pay back premiums on Egypt’s external debt to the Paris Club, estimated at $700 million.
Demands and challenges
Keiko Honda, executive vice president and chief executive officer at the World Bank’s Multilateral Investment Guarantee Agency (MIGA), said at the Euromoney Egypt conference that investors are “confident” in Egypt’s investment atmosphere, but they are waiting for the restructure of investment legislations and laws.
“Amendments of legislation regulating investment must be activated ahead of the upcoming Development Partners conference aimed at luring Arab and foreign investment,” Taha said.
Criticizing the government’s “unsatisfactory” performance, Taha said; “Certain sectors stir up the public such as the electricity and energy.”
When asked about the most urgent needs to boost the economy in the near future, Taha said; “A Cabinet reshuffle is required.”
“Sisi was to achieve more progress, but businessmen’s poor contribution in motivating the economy despite the president’s frequent calls to donate for Egypt’s Long Live Egypt Fund, restricted the targeted recovery,” Taha concluded.