A Tale of Two Egypts

Against the backdrop of the upcoming local elections on April 8 and the arrest of over 300 members of the country’s biggest opposition group, Egypt is at a critical juncture along its path towards political and economic development with contradictions that are pulling this most populous country in the region in critically opposite directions. With 40 percent of its population living below the poverty line, the Egyptian economy is witnessing consistent growth and is attracting billions of dollars in foreign direct investment. This remarkable dichotomy is dangerously pushing the country along a perilous tight rope between either becoming the success story of economic reform in the region or driving the country into failure and instability.

At a time when the global economy is teetering on the brink of recession and financial disaster, the market-oriented government of Egyptian Prime Minister Ahmed Nazif —and especially his reform-minded economic portfolio cabinet members—has partnered with the country’s private sector to guide the country along an economic reform package that has become the envy of other countries in the Middle East and North Africa region. In its “Doing Business 2008” report, the World Bank rated Egypt the world’s top reformer, indicating that “…starting a business at the one-stop shop in Assiut or Alexandria is now as easy and almost as fast as it is in the capital.”

These reforms and other factors have led the Cairo and Alexandria Stock Exchange (CASE) to outgain other markets in the Arab world. The Egyptian stock market, under the leadership of its reformist chairman Maged Shawki, surged 51 percent last year, and is up close to 10 percent this year already. Egypt has become an attractive destination for Gulf institutional and individual investors flush with billions of dollars from an unprecedented oil revenue bonanza. Foreign Direct Investment (FDI) reached $11 billion last year, a record. The Egyptian economy has so far shrugged off negative effects from a global slowdown and enjoyed growth of over 7 percent last year, and is on pace to match or beat that this year, the fastest in decades.

It is apparent to visitors of this country that the wealthy sector of Egyptian society is enjoying this new expansion of the economy and American-style consumerism is in display at plush neighborhoods of Cairo. New elite of professionals at investment firms and children of big business owners are buying new fancy cars, shopping at new, elegant shopping malls, eating out at lavish restaurants, and sipping lattes at swanky coffee shops. This new spending is, in turn, fueling an increase in profits for companies such as banks, carmakers, and real estate developers, but is in dire contrast with the desolate lives of the rest of Egyptians, which are also painfully in plain view all over the country. This new wealth and opportunity has enigmatically not penetrated beyond a thin layer of Egyptian elite.

The government-led reform package predictably included lifting subsidies for gasoline and diesel fuels as well as other products, which is helping the economy expand, is at the same time causing the cost of food and essentials to rise beyond the means of Egyptian families. To keep things in perspective, one has to understand that of the 80 million Egyptians, about 20 percent live on less than $1 per day, and 40 percent live in poverty. For political reasons and based on prior experience with lifting it, Egypt, a major importer of wheat, the main staple of the country’s diet, still subsidizes wheat and bread. While the rich are enjoying their mid-morning cappuccinos, the poor are increasingly forced to wait at earlier hours of the day at longer lines for bread; lines which have distressingly witnessed fights that have at times led to stabbings and death among those who are desperate to bring home the valuable loaves awaited eagerly by a family that can no longer afford anything else, and are their only means of survival.

The “Bread Lines” are one of the Egyptian regime’s most serious challenges; some believe it is even more critical than the political face-off at the upcoming local elections. In an effort by the regime to fend off potential riots and chaos, it has increased production of bread where it can and instructed the military to bake and distribute more, but “the street” remains restless. Demonstrations are being organized in opposition to price increases and demanding wage adjustments. International news agencies are reporting that authorities in the provinces are intervening to end strikes at government owned factories and arresting organizers. To many Egyptian analysts, this is an ominous reminder of the 1977 mass uprising in response to price increases, which led to dozens of deaths and represented a serious threat to the stability of the country. There are even public demands by some ruling party leaders and pro government newspapers to replace the market-oriented cabinet of Nazif by a security-oriented one led by a military official.

Why haven’t the effects of the macro-economic reforms trickled down to positively affect the lives of poor and middle-class Egyptians? Will the Egyptians start to feel these benefits before they have to be aborted because of public pressure? Can these reforms be really completed in a business environment that is corruption-ridden and a political environment that is authoritarian? Will Egyptians see reform and privatization as an opportunity for personal growth and entrepreneurship or just another tool for crony capitalists to get richer? These are the real challenges facing Egypt as it experiences one of its most uncertain and volatile times in recent history, and their answers are the keys to its success.

Published Date: April 07, 2008