By Alessandro Accorsi and Giovanni Piazzese
World leaders pouring in from all over the world, handshakes, pictures and even a selfie on stage. Cash flowing in, mega-projects announced one after the other, interrupted only by praises of the new Egypt and its newly-found stability.
The Sharm El-Sheikh economic summit titled, “Egypt, The Future,” was inarguably a success for the Egyptian government and for President Sisi. Egyptians all over the country watched the show on television, nodding and smiling at the promises of economic development.
The rise in terrorist attacks, the delay of parliamentary elections, the concerns for human rights violations, the police abuses and inefficiency, the restricted political freedom, even the questionable judicial rulings were all forgotten from the 13th to 15th of March.
The roadmap to democracy first announced in July of 2013, and continuously amended since then, has been substituted by Egypt’s “roadmap to improve the business climate,” in the words of Prime Minister Ibrahim Mehleb.
The recent upgrading by Fitch Ratings of Egypt’s credit rating to a “B,” for the first time since 1997, seems to be further evidence of the government’s efforts and successes.
However, while the conference was surely a political success for the cabinet and for the presidency, one could argue about whether it was successful from an economic point of view, supposedly the focus of the entire summit.
The conference was “a show that impressed ministers, consulting experts and corporate CEOs. I’m not going to deny that. It was impressive,” says Fadhel Khaboub, Associate Professor of Economics at Denison University and President of the independent public policy think-tank Binzagr Institute for Sustainable Prosperity. But, “it looks like the conference had been driven by political influence rather than pure economic common sense,” he adds.
Originally planned as a conference of donors from Arabian Gulf countries—and later re-labeled an “Investors’ Summit”—“Egypt, the Future,” was supposed to have unveiled details for 28 new development projects, fiscal reforms and a new unified investment law. Economists were also hoping to have details on how Egypt is planning to tackle corruption, improve transparency, and start national dialogue on how the government wants to invest money.
It was already clear that such expectations were to be ignored when the cabinet unveiled a mega-project to build a new capital far from the ancient center of Cairo. The “New, New Cairo,” as it has been dubbed without notice of its irony, monopolized headlines in Egypt and abroad.
In ancient times, pharaohs used to move their capitals between Upper and Lower Egypt, going from one side of the country to the other. Presidents of modern Egypt have more than once announced similar plans; to build new capitals that ended up as nothing more than expensive ghost towns in the desert. Thus, the idea of moving the country’s seat of power from Cairo to an as-yet-unbuilt city, a glitzy new Dubai-esque place where few Egyptians could afford to live, should not come as a surprise. However, the “New, New Cairo,” regardless of whether it will or will not ever be built, certainly serves as a bellwether of the Egyptian cabinet’s economic vision.
The main problems with the plans for the new capital, as highlighted by Khaled Fahmy, Professor of History at the American University in Cairo, is that the announcement came with no public discussion about it. The government expects 5 million people to move to the new city when the construction will be completed, but it has not asked these millions if they actually want to move.
The whole project is currently estimated to cost at least $66 billion, a huge amount of money for a country with an annual GDP of less than $300 billion. Critics argue the money would be better spent on other infrastructure or development opportunities. Cairo, moreover, will continue to host millions of people, but it will be deprived of investment, wealth and new infrastructure, not to mention government ministries.
It is true that corporate investors—especially in the real estate development business—are not particularly interested in fixing speed bumps and roads in Islamic Cairo or Imbaba. The idea of a “new Dubai,” with a park larger than Central Park in New York and a theme park four times the size of Disney World, is certainly more attractive.
However, “if Cairo has a demographic problem, it is because economic opportunities and infrastructure is concentrated in one area,” explains Khaboub. Migration to the capital did not happen simply because millions of people prefer living there. Rather, Egyptians moved for more economic opportunities and jobs.
“There are many existing cities that lack infrastructures and that might be improved, easing the burden on an over-populated Cairo and balancing the presence of economic opportunities in the country,” suggests Khaboub. The new capital, with its fancy buildings and skyscrapers, will probably not be an affordable place to live for many of those who leave their villages in search of a job.
The project, as most of the other development projects presented at the economic summit, completely lacks feasibility studies, planning, environmental impact evaluations, and transparency on the financial costs. The suspicion is that the organizers of the conference managed to convince investors to verbally commit to pour cash into Egypt, but that the money and what it will be used for will be completely different than what has been announced.
“Investors in any country want to know the legal framework, the taxation, the property tax rates, they want make sure that infrastructures are there before spending their money and they want security,” said Khaboub. No matter how optimistic the government is, real investors do not dispense money until they know they have all the guarantees.
“To me this means that if what Egypt is announcing is going to materialize there is only one way to have it come into place: through a militaristic government-business partnership to make sure that those investments are going to be secured and insulated from the Egyptian legal system and the democratic system,” added Khaboub.
The recipe to achieve economic growth and stability is well known to the Middle East generally, and to Egypt especially. According to Professor Kaboub, Egypt is going back to the pre-revolution concept of stability, of fighting terrorism and dissent, of bringing foreign investments to reach economic stability.”
It is the same model that Mubarak applied for years, only to find himself facing popular anger as corruption, social inequality, economic exclusion and lack of access to decent wages and jobs for young, educated people only worsened as the GDP grew. This model of reaching growth through big construction projects carried out by foreign investors in shady partnerships with big semi-public and military companies “will not bring a real and strong private sector and will not create more opportunities for the private sector. What Egypt needs is a new engine of economic growth,” Khaboub estimates.
Relying on big projects such as the Suez Canal or the new capital city will probably result in the creation of short-term, unskilled jobs, but it will not create new opportunities for employment or growth for the millions of educated young Egyptians or for the small and medium enterprises who rarely benefit from projects scale of this scale.
To achieve their goals and assure donors and investors that their money is safe, Egypt will need to protect them outside the domestic legal system, heavily relying on special decrees and the military-industrial complex. In this sense, the new delay of parliamentary elections could have not been more timely. But attracting new investments by tackling corruption and increasing transparency might just be another desert mirage.
On the other hand, the focus on large monumental projects rather than on diffused investments follows an easy logic. It is easier to lure money from abroad for these plans, and Egypt desperately needs foreign reserves at the central bank in order to sustain its exchange rate with the dollar. This is especially crucial as the country heavily depends on food and energy imports.
“These imports mean that Egypt will import inflation as those commodities are expressed in dollars in the global market. This also means that subsides for energy and food are going to be more burdensome on the government or prices are going to be raised and subsides are going to be cut,” explains Khaboub.
Relying on foreign reserves, or the lack of them, will bring to the table further economic inequality and place more of a burden on low income families. This is in turn likely to foster social and political unrest. Not exactly the recipe for stability.
At the end of the day however, all of these concerns about how money is spent might not matter as out of all the investments pledged at the conference, between $200-$300 billion, only $12 billion might actually reach Egypt. These billions were promised by the original sponsors of the conference, the UAE, Saudi Arabia, and Kuwait—Egypt’s main gulf sponsors. But with the global oil price plunge, the shifting balance of power in the region, and uncertainty on Saudi Arabia’s new King Salman’s political strategy, even the $12 billion cannot be taken for granted in the long run.
The rest of the money might just be vain promises. Prime Minister Mehleb said that the conference had netted $36.2 billion in investments, but Sisi said that Egypt needs $200 to $300 billion to develop. “For a country like Egypt, $300 billion dollars is a monumental amount of money,” said Khaboub, suggesting that the sum would be absurdly large even for other kinds of conferences focused on things like natural disasters or post-war reconstructions. Even in those cases, only a fraction of the money promised actually makes it through and it will be interesting to see the share of the $36 billion pledged that will actually reach Egypt.
“That’s why I am really suspicious: it seems more a political meeting than an economic one,” says Khaboub. “This is not Davos, this is an Egyptian donors conference.”Download