Stability is returning to the regional power after years of turbulence

With a history dating back around five millennia, Egypt is one of the world’s oldest civilizations. The Pyramids of Giza and the Valley of the Kings in Luxor, among thousands of other less celebrated monuments, attest to the age of the country’s culture, founded on the fertile banks of the Nile and the river’s delta where it meets the Mediterranean Coast. Egypt’s history has seen a range of dynasties, empires, regimes and governments, from ancient Egypt through to the present day, where it continues to serve as a regional power befitting the Arab world’s largest population.

The Arab Conquest came in 642, followed by dynasties including the Abbasid and Fatimid; Ottoman rule; then the French and British. In many ways, Egypt’s contemporary history kicked off with Mohammed Ali, an ethnic-Albanian Ottoman army officer who became khedive (viceroy) of Egypt and oversaw the construction of infrastructure and the development of a more modern army. Under his watch, the cotton industry boomed and Egypt became an economic force in its own right. Then, in the early 20th century, came a new, invigorated Egyptian nationalist movement with prominent leaders including Saad Zaghloul.

But independence truly began with the Free Officers’ Coup on July 23, 1952. This deposed King Farouk – Mohammed Ali’s great-great grandson – in a rejection of what was seen as his affiliation with the British Empire and an assertion of nationalist sentiment.

Recent History

In 1954 Gamal Abdel Nasser came to power, becoming prime minister and then president. Nasser became a figure of some renown, popular in Egypt, across the Arab World and beyond for his domestic and foreign policies. At home, Nasser undertook a redistribution of land to the fellahin (peasantry), as well as industrialisation and the nationalisation of large swathes of the economy. Overseas, he was one of the leading members of the Non-Aligned Movement (NAM), which included India, Yugoslavia and a range of other developing countries, and sought to plot a diplomatic course that was neither in the Soviet nor the US’s sphere of influence. In reality, many of the countries, including Egypt, leant more towards the USSR and the Communist Bloc as a whole. The NAM still exists with Egypt and almost all African countries as a member, and Egypt’s Sinai resort of Sharm El Sheikh hosted a summit of the organisation as recently as 2009. Under Nasser, Egypt was also briefly united with Syria in the short-lived United Arab Republic, from 1958 to 1961.

Nasser’s legacy is generally seen as positive in Egypt, given the rapid development of the economy and the country’s increased diplomatic clout, although his administration’s socialist approach to economic management has not necessarily stood the test of time.

Sadat & Mubarak

Following Nasser’s death in September 1970, he was replaced by fellow officer Anwar Sadat, who had announced the Free Officers’ revolution to the Egyptian people over the radio in 1952. After Nasser’s socialist domestic policies and attempt to plot a course between the world’s two main superpower blocs, from around 1975 Sadat adopted a programme of economic liberalism and embraced closer relations with the West. His infitah, or openness, policy – sometimes translated as “open door” – welcomed foreign investment and sought to encourage the development of the private sector.

This marked a change in direction for Egypt, and to an extent, the strong market element of Egypt’s current economic model dates back to that era. Another milestone of Sadat’s rule was the March 1979 peace treaty signed with Israel at Washington, DC, following the previous year’s Camp David Accords. The historic deal allowed mutual recognition, an end to the de jure state of war that had existed between the countries since the 1948 Arab-Israeli War, and the withdrawal of Israeli troops and settlers from the Sinai Peninsula, over which the nations had fought. The deal generated controversy, however, and contributed to the assassination of Sadat in October 1981 by an Islamic extremist.

Mubarak & Revolution

Sadat was succeeded by Hosni Mubarak, an air marshal and commander of the Egyptian Air Force before becoming Sadat’s vice-president. Mubarak continued many of Sadat’s policies of economic liberalisation and remained on good terms with the US. In the latter half of Mubarak’s rule, reforms were passed to enhance the business climate and encourage foreign investment, while deals with the EU strengthened Egypt’s trading ties and helped stimulate export-oriented business. Growth was particularly strong in the first decade of the 21st century, before slowing somewhat due to the global economic crisis.

Despite the expansion of the middle class, strong growth did not necessarily lead to benefits for all sectors of society, and both poverty and unemployment remained stubbornly high. Parts of the public administration were also accused of corruption and incompetence, and outlets for popular and political expression were limited. On January 25, 2011, these factors came to a head. Protestors partly inspired by the successful Tunisian uprising that ousted President Zine El Abidine Ben Ali gathered to protest in Cairo’s central Tahrir Square. Protests in Tahrir and across the country, bringing together a wide spectrum of the population, led to Mubarak’s resignation on February 11.

The weeks that followed were marked by unrest, but a measure of order came about following Mubarak’s replacement by the Supreme Council of the Armed Forces (SCAF), headed by Field Marshal Mohammed Tantawi, who acted as transitional president prior to handing over power to a civilian government.

Islamist Interlude 

Parliamentary elections in November 2011, considered to be the first free and fair elections in the country’s history, returned a broadly Islamist-leaning House of Representatives, the lower house of Egypt’s bicameral legislature, with an overall voter turnout estimated at 54%. The largest single party was the Freedom and Justice Party (FJP), which took 43% of the vote. The FJP was linked to the Muslim Brotherhood, an Islamist movement founded in Egypt in 1928 that was eventually banned under the Mubarak administration. The second-largest party was Al Nour, a conservative Salafist party, followed in turn by a broad number of smaller secular groups. In February 2012 elections to the Shura Council, the upper house of parliament, a 10% turnout saw the FJP take 58% of the vote.

As a new constitution had yet to be drafted, Egypt remained a presidential republic, and presidential elections were held in May 2012. Some 13 candidates from across the political spectrum stood in the first round, and the fragmented field led to a second round for a run-off. Following a legal wrangle, the second round went ahead on June 16 and 17, between Mohammed Morsi of the FJP, and Ahmed Shafiq, a former air force commander and Mubarak’s last prime minister. Morsi took 51% of the vote to Shafiq’s 49%, highlighting Egypt’s sizeable ideological differences.

Constitution

In the months that followed the January 25 revolution, a new constitution was prepared to replace that introduced by Sadat in 1971. In March 2011 parliament nominated a 100-member committee to draft a new constitution that was to be put to a national plebiscite. However, the composition of the group, dominated by Islamists and with liberals, women and minorities only thinly represented, proved controversial and 30 members, including representatives of the Coptic Church and of Al Azhar (the highest jurisprudential institution in Sunni Islam), boycotted the committee, rendering it null and void. A compromise was reached in early June 2012 when parliament nominated a second 100-person committee with 61 independents and 38 representatives drawn from 10 different political parties. However, the dissolution of parliament by SCAF in the same month put an end to this initiative, as the military body introduced its own interim constitution. In November 2012, Morsi announced a new constitutional committee, with limited representation of minority groups, which drew up a constitution in just a few days closely modelled on the 1971 version, but with a considerably greater recognition of Islam and allowing greater influence of Islamic jurists. A referendum the following month approved the Morsi constitution, but there was great dissatisfaction about its content and the manner of its execution.

Another Change

Growing popular resentment over Morsi’s rule saw protests grow, coming to a head in late June and early July 2013. As well as the constitution, protests arose over perceptions of a lack of inclusion in the democratic process and a tendency towards an abuse of power, which was exacerbated further by a lengthy and weak economic recovery. On July 3, having issued an ultimatum to Morsi some days before and with protests rising in tenor, the military removed the president and suspended the unpopular constitution. Adly Mansour, the former chief justice of the country’s supreme court, was sworn in as acting president, with a cabinet of technocrats. Protests against the new government by Morsi supporters led to continued unrest, but the bulk of the previous protests began to subside.

Stability Returning

While protests continued in the second half of 2013, they began to lose momentum as the interim government sought to provide reassurances on both stability and pending elections.

“Broadly-speaking, security remains a challenge for Egypt’s government, but small changes like renewing ID cards with high technology is a step towards improving overall security and strengthening growth,” Walid Fouad, general manager of Safran Morpho, an electronic security solutions company, told OBG.

In the years since the 2011 revolution, some of Egypt’s neighbourhood ties have worked to the immediate benefit of overall security, with the country receiving tens of billions of dollars from Qatar, Libya, Saudi Arabia, Kuwait and the UAE to help shore up its foreign currency reserves. Over the past year, $13bn in aid has been secured from Qatar ($8bn), Libya ($2bn), Turkey ($2bn) and Saudi Arabia ($1bn) in the form of deposits to the central bank, loans, oil exports and investments. In July 2013, after the change in government which ushered in an interim period of military governance, Saudi Arabia emerged as the most significant supporter, coordinating an aid package totalling $12bn, made up of $5bn from its own coffers, $3bn from the UAE and $4bn from Kuwait. The funds, in cash, petroleum products and natural gas, proved a hugely important boost to Egypt at a difficult time. Saudi Arabia’s offering included $2bn as a deposit in the Central Bank of Egypt, after a period in which Egypt’s foreign exchange (forex) reserves had fallen by $20bn, to worryingly low levels. As well as bolstering Egypt’s forex reserves and helping plug what had become a large budget deficit, the aid from the Gulf allowed a degree of stimulus spending to help boost flagging domestic demand.

Constitutional Referendum 

The constitution of 2012 having been one of the major reasons for unrest and Morsi’s ouster, the interim government set out to prepare a new constitution based again on the 1971 model. The new document was drawn up by a series of commissions and was then presented to President Mansour in December 2013. A referendum in January 2014 saw the constitution overwhelmingly approved, with 98.1% voting yes. Turnout was at 38.6%, higher than in the 2012 referendum. The constitution grants more power to three key state institutions – the army, the police and the judiciary. Presidents are allowed a maximum of two four-year term and may be impeached by parliament. The constitution guarantees equality for women and freedom of belief, while affirming Islam as the state religion. Political parties may not be founded on religion, race, geography or gender.

Presidential Election

The next presidential elections to end the country’s second interim government in three years were set for May 2014. Unlike the previous elections, the field saw only two major candidates stand: former field marshal Abdel Fattah El Sisi, who resigned from his military post to submit his candidacy, and Hamdeen Sabahi of the Egyptian Popular Current, a left-leaning secular grouping. Several Islamist parties were banned or abstained from the polls.

El Sisi won by a landslide, taking 96.91% of the votes on a turnout of 47.5%, and the start of his tenure – which has so far involved a number of significant reforms – has seen a marked increase in terms of investor confidence and a broad return to stability for the country.

Reform and Development

El Sisi was sworn into office in June 2014. While there is still a measure of opposition from Islamist groups – among others – the improvements wrought by the new administration in terms of daily stability have come as a welcome respite after years of uncertainty and unrest. This has also provided the El Sisi administration with a window of opportunity, which has allowed the government to roll out dramatic reforms. Perhaps his most significant early measure was to cut subsidies (see Economy chapter), something that successive governments of all stripes have talked about without acting on in any meaningful sense. Within weeks of El Sisi taking power, the government had introduced a new budget for the 2014/15 fiscal year, slashing spending on energy subsidies by nearly a third, from LE144bn ($20.4bn) to LE100bn ($14.2bn). Bread subsidies, long considered very politically and socially sensitive given bread’s position as a staple in Egypt, were also reduced, by somewhat less. Despite the hike in costs, the measures have been broadly accepted by Egyptians, and the success has come as something of a victory for El Sisi and his government after many years in which the leadership never quite had the nerve to make changes to the subsidy regime, despite external pressure. The cuts go some way to reducing the large budget deficit – an estimate by Capital Economics suggested that the deficit would be trimmed by the equivalent of 2.5% of GDP. The government has also invited the IMF to visit Egypt to assess the fiscal and monetary situation, with the hope being that the fund will give a positive report that could lead to a new loan deal. Talks with the IMF had been stalled for three years during Egypt’s political turmoil – just at the time when it might have benefitted from some external influence to encourage a more prudent fiscal approach. In October 2014 US Treasury Secretary Jacob Lew visited Cairo and signalled that the US government would back a new IMF deal on the condition that it encouraged further reform in Egypt.

Important as tackling the fiscal situation to improve the investment environment is, it has not been the dramatic move made by the government in 2014. In August 2014 El Sisi launched an ambitious $4bn project to expand the Suez Canal, arguably Egypt’s greatest strategic asset and one of its biggest generators of foreign currency earnings, bringing in around $5bn a year. The initiative involves 35 km of dry digging – creating a new channel – and 37 km of expansion and deepening of the existing waterway. By some estimates, this could boost the canal’s earnings to $13.5bn a year in the longer term. The government is establishing an industrial estate in the canal zone on a 76,000-sq-km site.

Outlook

Since 2011 a state of transition has become a more or less permanent feature of Egypt’s political scene. However, in late 2014, and particularly after El Sisi was sworn in, the political situation has stabilised. A parliamentary election, for example, is expected in the first half of 2015, under the new constitution. This is the “third pillar” of the post-Morsi votes, following the constitutional referendum and presidential election. Indeed, parties and coalitions were already manoeuvring for position from mid-2014. Groupings expected to contest the elections include the Egyptian Front, a leftist and liberal coalition; My Homeland Egypt Party led by former interior minister Ahmed Gamal Eddin; and the Egyptian Patriotic Movement founded by Shafiq, the presidential candidate who ran against Morsi during the second run-off. The Salafist Al Nour Party, which has thrown its support behind El Sisi, may also stand. As Egypt continues to find its footing and look to the future, stability across the board should improve as well.