At the outset of 2018, Egypt stands at a crossroads. On one hand the IMF predicts a respectable growth rate of 4.5 per cent for the coming year; while a series of hard-hitting reforms, like subsidy cuts and currency devaluation have demonstrated a readiness to address economic challenges. On the other hand Egypt faces massive challenges: Continuing instability in Sinai; high unemployment; and concerns from investors about the nation’s future course.
To encourage exports and internal investment, the government in 2016 engineered a sharp currency devaluation, halving the value of the Egyptian pound. This benefited local exporters while making Egypt more attractive for international tourists, with the resulting economic bounce helping to reduce Egypt’s current account deficit. However, this move untethered the genie of runaway inflation.
The government over the past year can claim some successes in bringing inflation under control, but price increases continue to eat into citizens’ standards of living. Consumer prices this November rose 26pc compared to 30.8pc a year earlier and the prices of basic foodstuffs continued to grow rapidly. Furthermore, raising interest rates to dampen inflation has also had a depressing effect on borrowing by businesses and overall economic growth.
Tweaking these economic levers cannot mask the fact that the fundamental factor holding the Egyptian economy back has been political instability. This is most obvious in the tourism sector where a constant litany of negative reports about terrorism and unrest kept away millions of potential visitors to Egypt’s beautiful beaches and historic sites.
Similarly in a state which has seen two bouts of “revolutionary” political change, long-term investors face the perpetual concern that a radical change of circumstances may see them losing everything. However, the last year has indeed seen an amelioration in the number of tourists and levels of investment. Therefore the priority must be to continue to encourage international confidence in Egypt’s long-term stability.
The central challenge which faced all Egyptian governments has been how to provide employment for the vast pool of young people emerging out of schools and universities every year. Egypt’s official unemployment rate has remained steady in recent years at around 12pc, with 80pc of this figure constituting young people.
Arguably the bouts of unrest since 2011 has been massively fuelled by immense numbers of young people who see little future for themselves and struggle to find even the most menial employment opportunities. This creates a vicious circle for this nation, because unemployment and disenfranchised young people increase the likelihood of political unrest, which in turn causes long-term damage to the economy.
With their responsibility for the wellbeing of 100 million Egyptians, the Cairo authorities are faced with the challenge of how to break out of this vicious circle of instability. With the cautious uptick in economic performance over the past year, the prognosis is positive. However, all the necessary ingredients exist for Egypt to take a sharp turn for the worse if problems emerge in the near future.
The challenge is how to turn Egypt’s huge workforce from a burden into a bonus; by improving standards of education, careful nurturing of job opportunities in key sectors, and putting Egypt back on the path to being the number one tourist destination in the Middle East and Africa. Extremist groups must be dealt with decisively, but not in a manner which perpetuates the narrative of martyrdom and grievances against the state. The minds of young people must be nurtured towards the workplace and future prosperity – not towards the afterlife and the nihilist doctrines of Al-Qaeda and ISIS.
Arab nations and the GCC must play their part in not abandoning Egypt. With its vast population, Egypt is necessarily a centre of gravity for the region. If it is abandoned and left to fester then Egypt will once again export extremist ideologies and radical, divisive tendencies to other Arab states. However, if we support Egypt towards a mature and stable political culture, then Egypt can be an engine of job creation, economic prosperity, a tourist haven and a centre for culture and promoting Arab unity.