Egypt’s stability rests on economic gains
Unless Cairo can consolidate economic progress, upcoming elections could become a focal point for mass protests
The Egyptian political scene has a crowded agenda for 2020. With three elections scheduled to take place, there are signs among important segments of the population of growing discontent with the authoritarianism of President Abdel-Fattah el-Sisi .
The economic backdrop presents stark contrasts. By many traditional metrics, Egypt’s economy is performing well, with high growth, falling rates of inflation and unemployment, a shrinking budget deficit and relatively robust investment. However, the effects of previous economic shocks and the IMF-backed reforms enacted since 2016 have eroded living standards, and there is widespread resentment at the growing economic power of a largely unaccountable military and intelligence establishment.
The elections will be for municipal councils and the upper and lower houses of parliament. Local elections were last held in 2008, and since 2011 municipal councils have been run by government-appointed administrators. A municipal electoral law has been awaiting parliamentary approval for some time; despite Sisi’s assertions that the local elections will go ahead soon, there could yet be more delays.
The upper house of parliament was abolished by the 2014 constitution, but it has been revived as part of the amendments approved in a referendum in April 2019, which also extended Sisi’s current term by two years to 2024 and opened the way for him to remain in office until 2030. The new chamber will have at least 180 members, two-thirds of whom will be elected and the remainder appointed by the president.
The main electoral event will be the lower house elections. Sisi and his intelligence services will seek to ensure that the new chamber is dominated by a more cohesive loyalist bloc than has been the case with the current parliament. The Support Egypt bloc accounts for the overwhelming majority of the 596 members of the chamber that were elected in 2015, but most of them do not have a party affiliation. The main loyalist party, the Future of the Nation, won only 53 seats.
Previous economic shocks and IMF-backed reforms have eroded living standards
Sisi, working through the General Intelligence Service—of which his son, Mahmoud, is the deputy director—and the Interior Ministry’s National Security Agency, will be looking to ensure that the seat tally of this core loyalist party is substantial. There is unlikely to be a significant showing from opposition parties or individuals. A group of activists seeking to build up an independent bloc to contest the elections were arrested in June 2019, and charged with raising funds from Muslim Brotherhood sources abroad.
During the course of 2020, the government will start to move its offices to the new administrative capital, to the east of Cairo. It is not clear whether the buildings that are supposed to house the new parliament will be ready in time for the newly elected assemblies to move in.
The elections will provide a focal point for protests against the Sisi regime. A brief flurry of protests in September 2019, featuring calls for Sisi to leave office, provided a glimpse of the deep undercurrent of opposition. The subsequent crackdown, with more than 4,000 people arrested, shows the determination of the authorities to quash any manifestations of dissent. This determination has been reinforced by the large-scale popular protests around the region—in Algeria, Sudan, Iraq and Lebanon.
One of the drivers of protest in Egypt has been the sense of economic grievance. The strong basis for that was illustrated during 2019 by the release of a household survey showing that 32.5pc of the population were assessed as living below the poverty line in mid-2018, almost 5pc more than in the previous survey three years earlier.
Indicators suggesting that the economy is now on track to yield improvements in living standards will not necessarily assuage this grievance, as expectations have been raised and there is dispute about the distribution of any benefits.
Nevertheless, based on current trends, the Egyptian economy is set to grow by at least 5pc in 2020, inflation will fall to single digits, and the budget will continue to show a primary surplus—which will enable the government to reduce its debt. Lower interest rates will help to push down the overall budget deficit and should support an expansion of private sector investment—but they also could act as a brake on foreign portfolio investment inflows.
Protests in 2019 provided a glimpse of the deep undercurrent of opposition
The Egyptian pound appreciated by more than 10pc during 2019, following the removal of some exchange rate control mechanisms and in response to strong inflows of foreign currency. The rally of the pound and generally subdued world oil prices meant that the government was able to lower fuel prices for the final quarter of 2019 in line with its new cost-based indexation system. There is a risk in 2020 that the exchange rate could weaken, which in turn could trigger fuel price increases.
Prospects for the Egyptian energy sector in 2020 remain positive. The Zohr and West Nile Delta offshore gas developments will reach plateau production of 3.2bn ft³/day and 1.4bn ft³/day, and Egypt’s supply will be augmented by the start-up of the pipeline from Israel—although further delays cannot be ruled out. Domestic gas demand growth will be constrained by the start-up of new solar and wind power projects, and LNG exports will climb to 3-4mn t over the year.
Tensions with Ethiopia over the Grand Ethiopian Renaissance Dam will continue to simmer, but a diplomatic accommodation remains more likely than military conflict.
David Butter is a Middle East analyst at Chatham House
Keep up-to-date with how the predictions in Outlook 2020 are playing out and get a first look at the themes that will shape Outlook 2021, as well as with relevant events such as the Outlook launch party and publishing schedules, by subscribing to Petroleum Economist’s bi-monthly Outlook newsletter. http://go.pardot.com/l/45692/2020-01-17/89x558