Return to stability allows Egypt to act on several political, economic strategies

The past year has been a busy one in the political life of Egypt. In 2015 the country conducted its first parliamentary elections since 2011, the year of the January 25 revolution. The ballot represented an important milestone, as it ushered in the first sitting Parliament in three years and the culmination of the post-revolution transition. At the same time, President Abdel Fattah El Sisi and his administration have been busy pushing forward measures to improve security and boost economic development. In this regard, the opening of the New Suez Canal expansion in August 2015 stands as a symbol of the current government’s ambitions.

Elections

In October 2015 Egyptians went to the polls to elect the first Parliament since then-President Mohamed Morsi was removed in 2013. Under the terms of the new constitution approved in 2014, the legislative branch has been restructured. The upper chamber, the Shura Council, has been disbanded and Parliament is now unicameral. The new House of Representatives consists of 596 members, 568 of whom are elected either as independents or as part of a party list. The president appoints the remaining 28 members.

In total, nearly 6000 candidates ran in the 2015 elections. The vast majority (5420) ran as independents, but a total of 84 political parties were also represented on the ballot. The big winners from the two-round poll were the For the Love of Egypt Party – a coalition of parties supporting President El Sisi – and the liberal Free Egyptians Party (FEP). The former coalition won all of the 120 seats available under the party list vote. The election was also a step forward for the greater representation of diversity in the country. Women, for example, won 87 seats. While this is still well below their share of the population, it is the highest female representation ever achieved in Egypt’s Parliament.

However, while there were some success stories, the elections were disappointing in other ways. The government pushed hard to promote the elections, and Prime Minister Sharif Ismail released a statement saying, “Egyptians [should] strongly participate in this important election to choose their representatives. It’s in their hands to determine the turnout.” This followed a decision by the electoral commission to fine eligible voters who did not cast a ballot $60, according to an October 2015 report by international media, a significant amount in a country where the average monthly income is around $400. Despite these efforts, turnout was low. In the first round of voting, 26.56% of the electorate cast a ballot, while in the second round the figure was 29.83%, according to a November 2015 article by a local online news portal. In 2011 participation in the parliamentary election stood at 62%. This suggests that the early post-revolutionary enthusiasm in the political process has waned and that government measures regarding civil society and political organisations have taken a toll.

While this impacted the legislature’s democratic mandate, the elections passed off with little incident and largely received approval from monitoring agencies. The South Africa-based Electoral Institute for Sustainable Democracy in Africa summed up the general sentiment on the election in a 2015 report. It stated, “The 2015 parliamentary elections were technically well run and took place in a largely peaceful atmosphere. The Mission regrets the unusually low voter participation for a nascent democracy like Egypt as higher voter turnouts are an essential ingredient for the legitimacy of any elected body.”

New Parliament

As such, the new body will have work to do in order to build public trust and confidence. In one of their first tasks, members of parliament elected Ali Abdelaal, a constitutional scholar who helped draft the 2014 constitution, as speaker of the house. Members have also been vocal in their commitment to holding the executive, as well as the prime minister and Cabinet he appoints, to account. In March 2016, for example, Ayman Aboul Ela, an elected representative of the FEP, told local media, “We want a detailed, timetabled programme by the government and we will be evaluating its strategy on the long run. We are going to ask them about their plans to execute the 2030 development that El Sisi spoke about and see if their plan will contribute to making a real, tangible difference in the lives of ordinary citizens.”

Economic Developments

The El Sisi administration, for its part, has stressed its commitment to the agenda first begun in the absence of the Parliament. One of the highest priorities for the government is to improve the economic environment in the country. Indeed, in commenting on a Cabinet reshuffle in March 2016, Prime Minister Ismail told local media that the new cabinet ministers would be responsible for bolstering government revenues, improving the tax and Customs systems in the country, and consequently shrinking the budget deficit. This is a key ambition given that the fiscal deficit stood at 12.4% of GDP at the end of FY 2014/2015. However, it was expected to drop, and by January 2017 Reuters had reported that it fell to 5% in the first half of FY 2016/17, which was believed to be largely due to the currency devaluation.

This is not the only complication the government faces. The country is grappling with several economic challenges, including a financing gap and a shortage of foreign currency (see Economy chapter). The president and his Cabinet, which faced another reshuffle in January 2017, have taken a number of dramatic measures in recent years to help address these issues. In his first 100 days in office in 2014, for example, President El Sisi cut fuel subsidies and raised taxes in a bid to generate more revenues for the cash-strapped government. Moreover, Hany Kadry Dimian, the minister of finance at the time, pushed a value-added tax (VAT) bill through Parliament in mid-2016. Such a move is seen as a crucial step in securing donor financing and support. The IMF, for example, called for such reforms following a staff visit in late 2015. In a press release, the fund noted, “The mission welcomes the authorities’ plans to pursue fiscal and structural reforms in order to put public debt on a downward-trending path and encourage private sector credit, thereby supporting growth and employment. Lower fuel and electricity subsidies, combined with the implementation of the VAT, would go a long way towards improving the strength of the budget.”

Furthermore, local media reported in February 2016 that a $3bn World Bank loan announced in October 2015 had been dependent on certain economic reforms, including the implementation of VAT. Following these measures, and the November 2016 decision to allow the currency to float freely, the IMF confirmed the final approval of a $12bn loan for the country in November 2016. The funds will be disbursed over a three-year period, with the central bank receiving the first instalment immediately in that month. Such funds will be crucial for the government, as other sources of funding from regional donors in the Gulf become more precarious and remittances decline. However, the loan also puts the government in a difficult position politically. The conditions required to access the funds, including the reduction of subsidies and the floating of the currency, are likely to lead to short-term hardship for the average Egyptian household.

Easing The Burden

The government is trying to mitigate the impact of growing inflation for the most vulnerable elements of the population. This includes the continuation of a cash transfer programme launched in 2015. The $400m initiative, known as the Strengthening Social Safety Net Project, is financed by the World Bank and offers income support to poor Egyptians.

According to a November 2016 report by international media, the programme has different elements, with components ranging from $21 per month to $35 every three months. As such, given the limited scope of the transfers, the support acts mainly to cover the cost of food. The programme runs alongside an existing food subsidy scheme introduced in 2014. This allows Egyptians to use LE22 (equivalent to $1.17 as of December 2016) per month to buy from a list of 20 approved products, including meat, fish and bread.

However, in January 2017 Prime Minister Ismail announced that the government was planning to replace the subsidy scheme completely with cash transfers. The government believes that such a method will be more efficient and reduce graft. As of April 2016, 71.6m Egyptians, out of a total population of around 92m, received subsidies, according to a January 2017 international press report. While the new scheme may reduce the number of people covered, it may also reduce government losses and offer higher cash transfers to the most vulnerable. Given that consumer prices rose by 23.3% year-on-year in December 2016, government programmes to offset these increases for the poorest Egyptians will be crucial going forward.

Aiming High

While the government has worked aggressively to tackle inherited policy challenges, firefighting and restructuring have not been the sole focus. Indeed, it has set an ambitious agenda in a bid to attract investment and strengthen the country’s infrastructure (see Transport chapter). The most visible symbol of this intent is the New Suez Canal expansion. Opened to great fanfare in August 2015, just one year after the president announced the project, the new infrastructure allows for two-way traffic on a 35-km stretch of the canal and for larger vessels to navigate the waterway. Built at a cost of $8.2bn, the government hopes the expansion will bring in greater revenues to the country. While the canal – along with other similar grand initiatives such as the Egypt Economic Development Conference, held in early 2015 with heads of state from around the world and intended to help attract new investment into major projects like a $45bn New Administrative Capital (see Real Estate chapter) – was seen as an attempt to turn the page on Egypt’s recent troubles, substantial challenges remain.

Security

The government has staked a significant amount of its political capital on addressing the security challenges that are affecting the country. Egypt currently has to deal with risks presented by violence in Libya, Syria and Yemen, where instability has generated problems throughout the region. This was made clear in December 2016 when several separate bombing incidents killed scores of people across the country.

As a result, the current administration has made the implementation of new measures to improve security across the country and rebuild trust in the safety of Egypt as a destination a priority. In January 2016 the government announced the allocation of an additional LE250m ($13.3m) to improve security in the nation’s tourism resorts. This included new closed-circuit television systems and new scanning and detection devices. In January 2016 Hisham Zaazou, minister of tourism, told Reuters, “These additional measures bring our tourist security to another level. However, we will not stop there. We constantly review our capabilities...and will continue to do so.” Such reassurance is critical, as the government looks to bolster a tourism sector that is struggling to rebound from Egypt’s prolonged period of political instability (see Tourism chapter).

The government then announced in February 2017 that the country’s airports had now met all the security standards recommended by Russia in the wake of the downing of a charter passenger jet flying between Sharm El Sheikh and St Petersburg in October 2015. The new measures include additional checks on airport staff and a biometric access system for restricted areas of the airports. Russian aviation experts continued to assess such measures at the airports in Cairo, Hurghada and Sharm El Sheikh throughout February 2017.

Outlook

After several years of political uncertainty, the stability of El Sisi’s administration provides a modicum of certainty for Egypt – something that is crucial for a country that is located in an unstable neighbourhood and is beset by security problems in the Sinai Peninsula to the east and the deserts bordering Libya in the west. However, the government has worked hard to reset relations in its neighbourhood and beyond as a means of better addressing these challenges (see analysis). Furthermore, while the government has made substantial strides in attracting new sources of foreign investment to the country, the fiscal and wider economic situation in Egypt remain precarious. As a result, President El Sisi and his new Parliament still have much work to do during their current term in office.