Egypt’s economic woes worsened under President Abdel Fattah el-Sisi, whose ambitious $300 billion New Administrative Capital project has exacerbated poverty and inequality. Sisi’s regime faces a severe debt crisis, forcing austerity measures that disproportionately burden the poor while enriching military elites and their allies. Despite massive investments in mega-projects, Egypt’s economy remains stagnant, with rising poverty rates and a growing dependence on foreign loans and investments to stay afloat. The country’s future looks uncertain as economic policies favoring the wealthy deepen social divisions and weaken public finances.

As reported by Middle East Eye, last autumn Egyptian President Abdel Fattah el-Sisi delivered a speech in Cairo’s New Administrative Capital, a $300 billion project that would ultimately define his reign.

He stated that hunger was a minor price to pay for progress: “If growth, prosperity, and development come at the cost of hunger and deprivation, Egyptians, do not be afraid of progress! Don’t remark, ‘It is better to eat.'”

This horrible vision of starvation and deprivation is what millions of Egyptians will face in the next years.

A decade after taking office, Sisi has brought the economy to the verge of collapse. The symptoms are widespread. A major financial crisis is suffocating the state budget, the economy is heavily militarized, billions of dollars have been invested in white elephants with questionable economic returns, and the crown assets of Egypt’s public sector are being sold to pay off increasing debts.

This is all due to the military’s aim to keep power and money in its own hands at all costs. This will have far-reaching effects for future generations, and recovery will need enormous effort.

Millions more individuals have been forced into poverty in recent years, and this trend is anticipated to continue for the foreseeable future. The poverty rate rose to 33% in 2022, up from 26% in 2012/13, as the government continued to push the costs of the financial crisis to the poor and middle classes.

The most visible evidence of this is the regime’s austerity policies, particularly the 300 percent hike in the price of supported bread, a staple item for the most needy people, announced in May.

Transferring wealth

This follows price increases for basic commodities announced by the government in January. These policies are part of a larger agenda that aims to shift wealth from the poor and middle classes to regime elites and creditors.

The logic is straightforward: increased spending on mega-projects, financed by high-interest debt, has allowed the military to rapidly expand its economic footprint, while debt repayment is financed through the appropriation of public resources, which is then financed by a regressive tax system.

This results in a diabolical cycle of structural poverty that is extremely difficult to break. A cursory examination of the current budget reveals this pattern, with a regressive consumption tax earning 828 billion Egyptian pounds ($17 billion); in second place is the business gains tax, which yields a meager 239 billion pounds ($5 billion). It is worth mentioning that debt commitments will absorb 62% of total budgetary expenses.

The rise in poverty will be accompanied by another fundamental transformation: the Egyptian economy will become more subject to foreign shocks and the goodwill of the regime’s friends.

The figures from the last decade attest to this. Despite a spending splurge worth hundreds of billions of dollars, the Egyptian economy’s competitiveness and industrial base have not improved. The industrial sector’s contribution to GDP declined from roughly 40% in 2013 to 33% in 2022, a significant decrease.

In terms of export performance, Egypt’s current account balance is solidly in negative territory, falling from minus two percent in 2013 to an estimated minus six percent in 2024, according to IMF data. According to the IMF’s current prediction, this negative trend is anticipated to continue until at least 2029.

Financing gap

This means that the country’s foreign reserves will remain under strain in the medium term, putting additional pressure on the pound’s eroding value. The problem is exacerbated by the debt crisis, which consumes a large portion of the state budget, making public expenditures to boost economic competitiveness extremely unlikely.

Indeed, the debt burden is so huge that, after receiving more than $50 billion in recent loans and investments, the financial shortfall is anticipated to be $28.5 billion. This means that shortly, the Egyptian economy will require ongoing external support in the form of loans and investments to maintain a semblance of stability.

The most famous example is the UAE’s $35 billion investment, announced in February, which was vital to avoiding a possible default or debt restructure – providing the regime can reign in public expenditure and put a stop to its cronyism. Unfortunately, signs indicate that this is not the case.

In May, the Egyptian army’s Engineering Authority announced plans to proceed with the third phase of the South Valley development project, which intends to reclaim 40,000 to 60,000 acres by 2025. It is worth noting that, despite multiple big reclamation projects of this nature, agriculture’s contribution to the country’s GDP has decreased from roughly 11.3 percent in 2013 to 11 percent in 2022.

Thus, the Egyptian economy’s reliance on foreign capital flows is likely to increase, making it vulnerable to external shocks, the erratic nature of regional politics, and the vagaries of international financial markets.

Grave consequences

The rising influence of Gulf capital in the Egyptian economy has serious economic ramifications. Last September, an Emirati firm bought a 30% stake in the government-owned Eastern Company, which controls 70% of the country’s tobacco market. The acquisition was valued at $625 million. The UAE has also subsidized the sale of other historic hotels for $800 million.

This trend will only exacerbate the Egyptian economy’s structural dependency by depriving the government of critical sources of public revenue, putting more burden on public finances. This will continue to destroy living conditions, weaken the pound, and send inflation skyrocketing, while also reinforcing the regime’s political alliance with its Gulf patrons, posing additional challenges to the prospects of democratization or improvements in workers’ rights.

The future of Egypt’s economy appears bleak. Even if the threat of financial default has receded for the time being, the consequences of a decade of misguided economic strategy remain.

The continued process of peripheralization will benefit a few of the local elites who will align themselves with the new reality. This applies not just to military elites, who will continue to gain from the infusion of loans and capital, but also to civilian elites, the most notorious example being Hisham Talaat Moustafa, an Egyptian real-estate billionaire and convicted murderer with close ties to the UAE. As a partner in the historic hotel transactions, his company’s profits reportedly increased by 220 percent in the first quarter of 2024.

Egypt is currently undergoing a massive structural transition, with millions of people living in poverty and wealth concentrated in the hands of a few, especially the military elites and their allies. This transition will have far-reaching implications that are extremely difficult to forecast. It is apparent, however, that the regime’s economic harm extends beyond the financial crisis and will take years to restore.

Recently, GreatGameIndia reported that Egypt has inaugurated the Hamam sewage treatment plant, the largest in the world, as part of the New Republic initiative. Located in the western Delta region, it marks a significant step in Egypt’s water management strategy.