Tragedy and Hope: Egypt’s Petroleum Sector in Light of the Economic Programs of Presidential Hopefuls

As the political fog clears and the future of Egypt’s power structure narrows down to a handful of possibilities, the fate of the country’s petroleum sector can be speculated upon in more precise, more firmly grounded terms. The implications of the electoral process on the sector and on the economy reach beyond the simple fact that the identity of Egypt’s new president will be determined. The conclusion of the process itself is expected to beckon relative stability born of increased certainty, even as the powers to be designated to the new president remain unknown.

The identity of the Egypt’s next president may in itself prove to be a hindrance to stabilization, particularly in light of recent results that show the Muslim Brotherhood’s candidate Mohamed Mursi and Mubarak-era official Ahmed Shafiq heading the pack. The policy orientation of both candidates is also likely to produce an effect on the petroleum sector, despite the fact that the economic policies proclaimed by both, and by most others in the race, do not stray far from vague centrism.

Ultimately, however, the impact of the elections and their results may end up affecting the sector more than any deliberate attempt by the future president to do so, as the president’s ability to significantly alter proceedings in the sector will likely be somewhat limited for political as well as practical reasons.

Although the main contenders for the presidency all approached economics in vague, cautious fashion in their election programs, the two front-runners, who will almost certainly face off against each other in the run-off, can be considered among those who played it safest, choosing to promise reform rather than an overhaul of the capitalist framework currently in place. Furthermore, in a move shared by many of the other prominent candidates, both Mursi and Shafiq relied heavily on political rhetoric, general goals, and statistical promises to fill space which would otherwise house detailed economic policies.

Those looking to bring the Egyptian revolution to the economy were overlooked by the larger portion of Egyptian voters. Khaled Ali, a true socialist and perhaps the most radical of the candidates competing for the presidency in terms of economic policy, was a marginal figure throughout the pre-election phase and consequently received a negligible amount of votes. Hamdeen Sabahi, a long-standing fixture of Egypt’s political opposition and a self-proclaimed Nasserist with a leftist orientation, was a popular choice but results showed him coming in third behind Mursi and Shafiq. As such, Egypt’s economy does not seem to be heading in the direction of any form of state-driven socialist model in the near future.

Even Abdel Moneim Aboul Fotouh, perceived to be the more liberal of the two Islamist candidates, was to an extent more inclined towards leftist economic policies in his electoral program than either of the front-runners. His program elaborated somewhat more satisfactorily than either of them on the buzzword of the hour, “social justice”, by detailing policies such as proportional taxation, as did the programs of other, less prominent candidates such as Judge Hisham al-Bastawisi.

The unsurprising fact that none of the candidates presented neo-liberal economic programs (due to the stigma attached to such policies following the revolution) leaves us with two front-runners who promote capitalist-interventionist models in which the private sector drives growth while the state acts as a regulator and balancer of the economic equation. This would place both candidates on the right-wing of Egyptian politics relative to their competitors, in both political and economic terms. These categorizations are not entirely applicable to a post-revolutionary nascent democracy such as Egypt, however, which seems to have developed an obsession with the role of religion in politics and the state. In fact, this point of contention draws the truly significant dividing line between the two candidates, as their economic policies appear remarkably similar in terms of general orientation.

The similarity of both economic platforms signifies that the petroleum-relevant policies to be implemented under either presidential candidate will likewise be similar. Brotherhood candidate Mohamed Mursi’s economic program envisions an Egyptian economy in which the private sector acts as the progenitor of growth and development, aided by facilitations and incentives from the government, while the state takes on the responsibility of providing the most basic services (education, security, etc.) and combating poverty and corruption in ways that do not interfere heavily with business.

This overview is one that is generally well suited to the petroleum sector, which relies heavily on foreign investment. Investors will be encouraged by an economic vision which recognizes their role as the drivers of growth in the domestic economy, and while corruption may unfortunately be viewed as a short-term backdoor through which to bypass legitimate investment obstacles by some investors, the minimization of institutionalized corruption in the economy and in the sector can only result in a more efficient, transparent sector in the long-term.

Ahmed Shafiq’s proposition of a partnership between the public and the private sector does not seem radically different. Moreover, it appears consistent with the operational status quo of the Egyptian petroleum sector. He has also targeted an increase in foreign investments as one of his program’s main goals, and has vowed to provide “all possible legal and procedural facilitations” to foreign investments.

Both economic programs thus share the priority of attracting foreign investments. In addition, while the concept of social justice is included in both programs through policies such as minimum wages in the case of Shafiq and a “flexible” taxation system in the case of Mursi, it is not the true focus of either. Skeptics will view it as lip service. Optimists will view it as an attempt to protect citizens from the side effects of raw capitalism. None will confuse it as a socialist initiative involving worker’s rights and heavy redistribution of wealth, elements often deemed unfavorable by foreign investors.

The clear understanding that both candidates have conveyed regarding the importance of foreign investment for the Egyptian economy in the coming period ensures that tax policy is unlikely to be harsh towards said investments. Granted, political actors will have to be more balanced in their treatment of investors and businesses so as not to draw the ire of the less wealthy public, but the leading two candidates are almost certain to be lenient on big investors in the near future, particularly in comparison to the aforementioned leftist contenders.

Other policy directions give relative advantages or disadvantages to one candidate in relation to the other. Ahmed Shafiq’s general tendency towards bureaucratic proliferation, including hiring several ‘presidential delegates’ to deal with specific issues, does not bode well for a sector in which foreign investors complain of excessive bureaucracy. His promise to develop nuclear and renewable energy may also do some harm, as it bodes well for Egypt’s energy industry but not the petroleum sector in particular, although such promises have been made and not kept in the past by officials working in the same political regime Shafiq is accused by many to have been a part of. 

Mursi’s program alludes to renewable energy as well, albeit briefly. In addition, his Islamic banking and finance initiative may scare away potential investors fearing a regressive innovation, but existing examples of Islamic banking systems that are in practice identical to standard modern banking should keep most such fears at bay. His intention to fight monopolization and ensure free competition (shared by Shafiq), may dismay the more exploitative of investors as well, but much like fighting corruption, the long-term effects can only be beneficial to all parties involved.

The issue of energy subsidization, a popular topic currently going through the rounds of Egypt’s many nightly talk shows, is among the prospective policies that will affect the petroleum sector. The issue is conspicuous by its absence in Mursi’s electoral program, but present in Shafiq’s. The secular candidate vows to end energy subsidization to industry while continuing to subsidize cooking gas and gasoline for what he labeled “deserving people”, most probably an indication to the poor. The current subsidization structure constitutes a burden that is becoming increasingly difficult to bear for the Ministry of Petroleum and the entities that fall under it, which means that a decrease in subsidization will allow the government side of the Egyptian petroleum sector to more effectively meet its obligations and to get its financial house in order.

Shafiq’s plan to extend natural gas to Egyptian households for domestic use may also prove provide him with a minor edge. It potentially enhances the proposition of foreign companies selling natural gas to the domestic market using the national grid, which is a possibility that has recently been discussed and would provide an incentive for investors to in participate in the much-needed development of Egypt’s natural gas resources. 

Some of these divergences in economic policy between the two candidates appear to give Shafiq a minor advantage when it comes to the petroleum sector. Mursi holds a significant advantage over his competitor, however, and it is more a result of political consequence than professed economic policy. The fact that the political party Mohamed Mursi heads, the Freedom and Justice Party (the political arm of the Muslim Brotherhood), holds the single biggest bloc in Egypt’s parliament will allow him to more effectively pursue and implement envisioned policies, whatever they may be.

Not only does Ahmed Shafiq not belong to the biggest parliamentary party, or any party that would support his positions in the country’s legislative body, but he can claim a fierce political enmity with the Muslim Brotherhood and the political strain they belong to. Shafiq is in fact portraying himself as the antithesis to political Islam, the anti-Brotherhood as it were, in order to attract voters who suspect or dislike that particular political current. Consequently, should he become president, the country would often find itself struggling with differences and deadlocks between the legislative and the executive branches of government. This is all the more significant due to the nature of the petroleum sector, in which parliament plays an active role in key issues pertaining to legislation and agreements.

By contrast, Mursi heads the Muslim Brotherhood’s dominant political party, and belongs to the current of political Islam which currently holds the most sway in Egypt’s political scene. This gives Mursi a massive amount of leverage in parliament, as it ensures that his general vision and the direction in which he decides to proceed will be shared by the most powerful parliamentary force. As a result his positions and decisions relevant to the petroleum sector are unlikely to meet substantial resistance in parliament, avoiding the pitfall of constant political confrontation between state institutions that is likely to unfold should Shafiq emerge as the victor in the run-off. 

Ultimately the announced economic policies and goals of both candidates, while in some cases highly consequential to the petroleum sector, do not deal with the pressing needs of the sector. How each candidate would deal with these needs as president is only to be speculated upon. Egypt’s conventional petroleum resources are dwindling, and the sector’s future will inevitably depend upon unconventional and deepwater resources. Naturally these resources require colossal investments from large companies, and such massive funds will not be pooled into such high risk operation unless the potential rewards meet that same standard.

The current model of petroleum agreements employed in the sector, and the entrenched customs of dealing with foreign investors and granting them certain terms and conditions, are ill-equipped to attract investments in the resources Egypt so urgently needs to develop. While this framework of operations is not entirely up to the future president, such significant changes can only be undertaken under the watch of a president who is to some extent progressive-minded, one that is not committed to the traditional methods of doing business.

The new way of dealing with investors that is required involves granting additional incentives to said investors, a direction which may be unpopular in political circles due to the need for some degree of populism in revolutionary times. Furthermore, both leading candidates can be described as conservative and may prove unwilling to deviate too heavily from the norm, particularly during a sensitive first term in office. On the other hand, their clear eagerness to attract investors and their undoubted recognition of the woes the economy is suffering may well push them towards a more progressive mindset.

As to who may prove to be the more progressive-minded, forward thinking of the two, only time can tell. Ahmed Shafiq developed a reputation as a man capable of doing business with the outside world during his tenure as head of Egypt’s national airline. However, he is a man of Mubarak’s regime and may be expected to operate under their same rigid, traditionalist mindset. Mursi and the Muslim Brotherhood have little experience in dealing with foreign investors, and one would be hard-pressed to find an educated analyst describing the group as progressive in any fashion. Nevertheless, the Brotherhood’s now infamous pragmatism, and the presence of several successful businessmen high in their ranks, will likely allow the group to adopt sensible modern business practices.

It is difficult to predict which candidate would be more willing to implement and push for the necessary reforms. It is even more difficult to predict the extent to which the president will be able to implement any reforms at all. Egypt’s new constitution is yet to be written, and the assembly tasked with writing it has not even been re-elected yet since its legal dissolution. This means that the powers of Egypt’s future president have not been determined. The country is actually likely to end up with a mixed parliamentary-presidential system due to the general fear that a presidential system will result in the resurgence of dictatorship.

It is expected that the system to be will prioritize parliamentary power, and even the possibility of an entirely parliamentary system cannot be absolutely disqualified. This is particularly probable in the case of a Shafiq victory, as the constitutional assembly responsible for writing the new constitution will be elected by the Islamist-dominated parliament. This would severely curtail or perhaps eliminate the president’s ability to effect substantial change.

In addition to doubts over the president’s constitutional authority, the issue of the military and its practical authority stands in the way of the future president’s capacity for change. Vital state institutions are highly militarized, either through official armed forces stewardship and intervention or through the unofficial influence of retired army officers in managerial positions. This does not exclude the petroleum sector; oil companies are often headed by retired officers whose loyalty is almost certain to lie with their former institution, while bid rounds pertaining to the sector require military approval before they can proceed to be released.

Despite the uncertainty of coming changes in the petroleum sector, the very occurrence of the presidential elections will have an effect on the petroleum sector. The election of Egypt’s first president will signal the official end of the extremely volatile ‘transitional period’ and the beginning of the new Egyptian republic (its arguable similarity to the old one notwithstanding). This can be expected to foment relative stability and foster an atmosphere of safety for investors, who will feel more at ease in dealing with and investing in a country the future of which has become clearer. The nervous anticipation of the elections will have been over, and a functional state with legal institutions (the legitimacy of which is not the current subject of discussion) will have risen to replace the chaos of political and historical forces struggling for control outside a clear legal framework.

The results of the elections have thrown such expectations of stability into question however. Ahmed Shafiq is largely perceived to be a figure of the old that was ousted by the revolution, and many revolutionary-minded Egyptians simply will not accept his ascension to power regardless of the electoral process. This was recently demonstrated in demonstrations that ended with an attack on the headquarters of his presidential campaign, this even before the second round run-off. If Ahmed Shafiq is announced as Egypt’s new president, further public unrest can be expected to occur, once again raising doubts about the political future of the country.

A Mursi victory would not be as drastic, seeing as how the Muslim Brotherhood does not have the ability to trigger public rage to a level equal to that of former regime members, but the Brotherhood’s image has taken a significant hit since the beginning of the uprising. Many have come to view the group as opportunist power-grabbers who have little interest in supporting the revolutions, and others simply fear the notion of a theocracy or at least absolute domination of all political institutions by one force. Opposition to the Brotherhood is quite clearly on the rise, but it is more likely to take the form of organized political opposition restricted to the confines of the political system rather than amassing a significant street presence.

Both candidates are not the ideal stabilizers a figure such as Amr Moussa or to an extent Abdel Moneim Aboul Fotouh would’ve been. Ahmed Shafiq is capable of rousing the passions of those who fought tooth and nail for a fading dream, and Mohamed Mursi inevitable stokes the fires of fear that always seem to accompany Islamism and the Muslim Brotherhood. Mursi, however, is less likely to prompt a second uprising should he emerge victorious, and is a relatively more secure option in terms of investment-luring stability. In either case, the fact that the two leading candidates are those that hold the biggest potential for polarization bodes ill for a sector that requires prosperity in order to strike long-term deals.

The future of Egypt’s petroleum sector, like the remainder of the country, hangs in the balance of a single election. It is thus ironic that it does not matter to which side the scale tips as much as it matters that it does tip to one side peacefully and stably. This is not likely to happen in the case of victory for either candidate, but projections for political turbulence and unrest are higher in the case of Shafiq victory, which may stand as the major differentiating factor between the two as pertains to the petroleum sector. Similarities in economic policies and uncertainty in their intention and capability for reform leave the sector contemplating the fine line between a bright future and a nightmare of endless headaches.

By Ahmed Maaty


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