As Egypt marked the fifth anniversary of the 2011 revolution on 25 January, it looks back on five years of rapid political change, social dislocation and economic turmoil. How has Egypt’s economy fared since 2011, and what is the outlook for the next five years?
By numbers alone, on the eve of the revolution, Egypt’s economy looked fairly healthy. During the mid-2000s, growth in gross domestic product averaged an impressive 7% annually. In 2010, the country had accumulated foreign currency reserves equivalent to $35 billion (sufficient to cover 8.6 months’ worth of imports) according to the Central Bank of Egypt, and in the same year GDP per capita stood at $2,600 according to World Bank indicators, an increase of almost 50% on $1,400 in 2006, MEE reported.
However, these headline figures masked the fact that the growth was not evenly shared. Much of it was consumption-led rather than investment-led, and concentrated in capital-intensive fields like petrochemicals and energy that tended not to create many jobs.
Combined with corruption and red tape, this resulted in a large informal economy–a 2014 study from the Egyptian Center for Economic Studies put it at two-thirds the value of the formal economy. World Bank figures show that in 2010 poverty rates were running at about 25%, up from 16.7% in 1999. So while political and social exclusion may have been factors in causing the revolution, economic exclusion shouldn’t be underestimated.
Sluggish Growth
In the aftermath of the revolution, uncertainty over the final outcome led to economic contraction and sluggish growth. The currency has depreciated and Egypt has required substantial infusions of funding from the international community after imposing capital controls in 2011.
The value of the Egyptian pound has fallen from LE5.5 to the US dollar in January 2010 to LE7.8 this January, and substantially less on the black market. In November 2015, the CBE reported net reserves of $16.4 billion, or 3.4 months’ worth of imports. As a rough measure of international confidence in the Egyptian economy, World Bank indicators show foreign direct investment inflows amounted to $4.8 billion in 2014, slightly up from $4.2 billion in 2013, but far below the $11.6 billion in 2007.
Positive Signs
Egypt’s GDP growth rate has fallen but seems to have found a floor since 2011. According to Shanta Devarajan, chief economist for the Middle East and North Africa region at the World Bank: “Growth has averaged in the region at 2-3% a year, which is well below its potential and historical growth rates, but impressive given the circumstances. This suggests that there is an underlying core of the Egyptian economy that continues to function, despite everything.”
Last August, Italy’s ENI oil and gas company announced it had discovered a gas field in Egyptian waters, the Zohr field, estimated to contain up to 30 trillion cubic feet of gas, enough to make a substantial contribution to the country’s energy needs for decades.
While the decline in the value of the currency is a headache for central bankers and importers, it has provided a fillip to some manufacturers, especially those that produce goods without substantial foreign-sourced inputs, as imports have become more expensive while Egypt’s exports are more competitive on world markets.
Massive investment plans that have been in some cases decades in the making are receiving new attention. The Toshka project, a scheme to create a second valley with waters from the Nile along a string of oases in Egypt’s Western Desert, has been renewed.
Perhaps even more ambitious are government plans for an industrial and logistics zone along the Suez Canal known as the Suez Canal Corridor Expansion. This involves building a second canal at a cost of $7.7 billion, funded largely from bonds. The project aims to double canal traffic by 2023, increase revenue, expand industrial production and create as many as one million new jobs. The first section opened in August 2015.
The key issue though, is economic reform, which in the case of Egypt cannot be separated from political and social reform. Unemployment remains high. While some measures have been pushed through, including the removal of most energy subsidies in 2014, progress on other measures, including the proposed introduction of a capital gains tax, which has been pushed back to 2017, has been slow.
The mood among the business community is more pessimistic than it was a year or two ago.
