Keeping Egypt’s Politics on the Agenda
Keeping Egypt’s Politics on the Agenda
Watch List 2017 – First Update
Watch List 2017 – First Update
Commentary / Middle East & North Africa 8 minutes

Keeping Egypt’s Politics on the Agenda

Still grappling with its post-2011 turbulence, Egypt's economy and politics require urgent stabilisation. In this excerpt from the Watch List 2017 – First Update early-warning report for European policy makers, Crisis Group urges the European Union and its member states to balance support for Egypt's economic reform with a strategy that seeks to fix the country's broken political system.

This commentary is part of our Watch List 2017 – First Update.

Europe’s approach to Egypt has focused on accompanying economic reform, a massive challenge for a country of 90 million still reeling from the effects of post-2011 political instability. However, doing this at the expense of addressing the troubling and dangerous state of Egypt’s domestic politics would be self-defeating.

Egypt’s Economy Under Stress

Egypt’s economy, under severe stress, is arguably the country’s single greatest source of potential instability. Six months into the three-year, $12 billion deal with the International Monetary Fund (IMF) inked in November 2016, its reforms are already taking a toll. The decision to free float the Egyptian pound (EGP) has diminished the currency’s value against the dollar (USD) by over 50 per cent, and inflation has skyrocketed. In February 2016, CAPMAS, the government’s statistics agency, found that food-price inflation reached 41 per cent year-on-year. Though the government also reduced fuel and energy subsidies in November 2016, the devaluation cancelled out much of the savings, since in EGP terms imports are now much more expensive.

President Abdel Fattah al-Sisi’s economic decision-making has at times been decisive but often imprudent. He has invested scarce resources in prestige projects with uncertain returns, such as a costly widening of the Suez Canal, and significantly boosted arms imports. He has postponed important decisions, including the EGP’s free-float, a delay that many experts say exacerbated the currency’s fall. Overall, Sisi’s behaviour suggests a reactive approach to economic reform, moving ahead only when under duress, such as when he needed to quickly secure the IMF loan. A $12.9 billion debt repayment scheduled for 2018 (even if some of it, owed to Gulf countries, is likely to be quietly written off) and a public debt that has officially reached 98 per cent of GDP (though many experts believe it is higher) present other looming crises.

EU-Egypt relations are beginning to bear a striking resemblance to what they were during President Hosni Mubarak’s era.

More importantly, the government appears to be pursuing economic reforms – many of which are likely to cause short-term pain and be contested by large segments of society – in an exclusively top-down, dirigiste manner. On the economy as in other matters, important decisions are often made with little to no consultation among stakeholders, without transparency or an adequate communications strategy. Even Sisi’s supporters among Egypt’s business elite appear sidelined, while the military has taken on an outsized role in implementing certain major economic projects, often without coordinating with private sector partners: the government announced a promising industrial zone in the Suez Canal zone but without consulting potential investors about their needs.

Simultaneously, the military and security services have tended to micromanage the use of foreign aid, the result often being either long delays in the implementation of projects or the blocking of those they do not like. The economy is relatively advanced, and the country enjoys both extremely successful private sector personalities and talented technocrats. Yet, as part of the wider reversal of the democratic opening of 2011-2013, the government is turning its back on consensus-building on major socio-economic issues. It often appears more concerned about securing foreign aid, especially direct budget support, than genuinely thinking through what its reform plan should be and how to implement donor agendas.

The top-down model notwithstanding, some major reforms have been avoided or blocked because of political resistance from within state institutions. This may seem paradoxical in light of the regime’s generally undemocratic nature, yet Egypt’s state is both authoritarian and plural. The European Union (EU) should keep this in mind as it seeks to accompany Egypt’s economic reforms; it cannot simply rely on a partnership with the executive.

Examples abound. For instance, parliament, despite being overwhelmingly supportive of Sisi, for the past year obstructed and ultimately watered down a civil service reform that sought to address the problem of a bloated bureaucracy. Although the private sector supported the reform, and the presidency sought to impose it, parliamentarians (most of whom have no party affiliation and were elected as independents) had to take into account the seven million civil servants (and voters) whose salaries amount to a quarter of the annual budget. That many of these parliamentarians themselves are former civil servants is another reason for their obstructionism. A proposed new investment law is likely to suffer the same fate. The judiciary, too, is battling attempts at executive encroachment. The presidency’s resort to emergency law to bypass the ordinary judiciary, as well as direct pressure on judges, can have a negative impact on the rule of law and the investment environment.

The EU’s dilemma: stability over reform?

Egypt presents a difficult dilemma. Since the 3 July 2013 coup that deposed President Mohamed Morsi, the EU, after an initial period of caution, largely normalised relations with the military-led regime. Several member states publicly embraced Sisi despite his regime’s repressive rule, judging that the priority was to help strengthen Egypt so it could better withstand domestic and external turmoil. This approach has been reinforced by the strong view among several key countries – notably Israel, Saudi Arabia, the United Arab Emirates and, more recently, the U.S. under the Trump administration – that stabilising Egypt is more important than reforming it.

In this sense, EU-Egypt relations are beginning to bear a striking resemblance to what they were during President Hosni Mubarak’s era. This could well be a mistake: the country’s polarised politics and resurgent authoritarianism are at the core of its inability to defuse the threat of extremism and embark on a sustainable path to reform of sclerotic state institutions. The 9 April twin bombings of Coptic Orthodox churches and their aftermath are tragic but telling symptoms. Despite three years of counter-insurgency in Sinai and ever more draconian counter-terrorism legislation, the Islamic State (ISIS, whose main local branch is called Sinai Province) now appears more confident and daring in its efforts to stir up sectarianism. The security services are widely perceived as inefficient, even as the Sisi regime has doubled down on an all-security approach by declaring a state of emergency and threatening to shut down critical media. This bodes ill for Egypt’s appeal to tourists and investors and risks deepening a vicious cycle of repression and extremist violence without addressing underlying political factors, all against the backdrop of rising socio-economic tensions.

Growing Polarisation

Ultimately, stabilising Egypt in a sustainable manner will not be achievable without a government willing to address the widening chasm between the regime’s defence of an ersatz secularism and its Islamist opponents’ increasing radicalisation. While the former remains rigid and autocratic in the name of defending the “prestige of the state”, the latter has embraced an irresponsible “revolutionary” discourse that, in essence, is banking on state failure. Voices calling for conciliation on both sides are marginalised; to date the EU and some of its members unfortunately appear, by and large, to have relinquished their early efforts at mediation. One result is the government’s growing rejection of human rights and rule of law and resurgence of an ugly sectarianism on the part of the opposition, particularly among members of the Muslim Brotherhood and its allies.

Allowing this polarisation to fester has consequences beyond Egypt’s borders. This is especially true in areas where Cairo tends to project its own domestic brand of politics, as in Libya. There, Egypt’s stridently anti-Islamist approach and unconditional backing for General Khalifa Haftar inevitably may complicate resolution of the conflict and managing its consequences, including the central Mediterranean migration crisis.

Supporting Economic Reform and More Inclusive Politics

Egypt and the EU will adopt their partnership priorities for 2017-2020 at the next Association Council in June 2017. These are expected to include support for Egypt’s sustainable economic and social development, as well as strengthened cooperation on foreign policy, in particular in the fields of democratic governance, security and migration. The EU will also implement a new assistance program to support these jointly agreed priorities. In the past few months of negotiations, Egypt has resisted what it sees as political interference in its domestic affairs, especially on questions of human rights, civil society and political pluralism – even though these issues are covered under the Egypt-EU Association Agreement. Moreover, many European officials believe they have little leverage over Egypt given its rulers’ determination to maintain their current approach at all costs. Both the EU and its member states appear inclined to revert to the pre-2011 status quo despite facing a very different Egypt. This could well amount to an ostrich strategy.

The alternative for the EU, with the support of member states, would be to place far more emphasis on Egypt’s broken politics. A presidential election is due in 2018, with parliamentary elections following in 2020; for their part, municipal elections are long overdue. Sisi supporters are pushing through constitutional amendments to remove term limits and otherwise strengthen an already extremely powerful presidency. All of these represent potential political flashpoints. It would be unwise and unrealistic to support Egyptian economic reforms – or partner on issues such as migration control or counter-terrorism – without taking this context into account and push for a more inclusive environment that could help defuse these potential crises. Several broad principles could be followed.

Stabilising Egypt in a sustainable manner will not be achievable without a government willing to address the widening chasm between the regime’s defence of an ersatz secularism and its Islamist opponents’ increasing radicalisation.

First, European governments ought to press for progress on issues that have been taken up by Egyptian political parties and civil society, such as pushing back on restrictions on civil society funding (especially foreign but also local) and organising, a draconian protest law, or suspension of the rule of law under the state of emergency. As a corollary, they should ensure continued engagement with segments of Egyptian society other than the state and insist that political parties and civil society organisations be able to operate with some degree of safety.

Second, Europe should keep channels of communication (even discreet ones) open with the more intransigent opposition, including elements toward which it has little affinity – and that the Egyptian regime has labelled terrorist groups – such as the Muslim Brotherhood, as well as members of the “anti-coup alliance” it leads. It should use those channels to push those elements toward moderation and an eventual reconciliation with the regime, however implausible that might seem today. These groups continue to enjoy sizable local support. To ignore or, worse, adopt the regime’s stance toward them, would be both short-sighted and counterproductive.

In this sense, Europe should seek to use its financial support to persuade Egypt to move in a more constructive political direction. The idea that it has little leverage over Egypt is an untested proposition; unlike in 2013-2014, Egypt can no longer expect automatic financial support from Arab Gulf states. At a minimum, Europe should ensure that core political issues remain at the top of its agenda, and that it maintains contacts with the full spectrum of Egyptian actors.

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