Sisi’s house of cards

Summary: the Egyptian president has built a debt-fuelled economic house of cards that Maged Mandour argues is dangerously close to tumbling down.

Today’s newsletter is a transcript, edited for length and clarity, of our 8 July podcast with Egyptian analyst and commentator Maged Mandour. Maged writes OpenDemocracy’s “Chronicles of the Arab Revolt” column. He is also a Sada writer for the Carnegie Endowment for International Peace, a contributor to Middle East Eye and a regular Arab Digest contributor. You can find the podcast here.

Maged you’ve written for Arab Digest that Sisi is in a zero sum economic game with inflation galloping ahead and massive debts growing by the day. Is he running out of time in his efforts to keep Egypt’s economy afloat?

The short answer is yes, absolutely yes. The economic development model that is heavily reliant on debt is now crashing down. The level of debt is consuming a bit over 50% of the state budget; interest rates, now, he has no choice but to increase them because he has to borrow more. The tax base is just way too weak to be able to pay back the debt. And there is a global inflationary wave, which is also exerting a lot of pressure. So his options are very, very limited. And it looks like he will require either a massive loan or a bailout or debt restructuring at some point. And considering the global economic situation, this will not be forthcoming, this will not be an easy conversation to have. He’s really running out of options, at least in the short term, and he doesn’t have a lot of time to remedy this. So yes, Egypt is in a very difficult economic position. Even the government, which rarely acknowledges that there’s a problem is now saying that they have a problem.

And how is this impacting ordinary Egyptians when they’re going out to the supermarket or trying to pay their rent? How is this economic crisis hitting them?

Well, I would expect that the poverty rates, which are already around 30%, will increase even more, and that’s 30% by the government’s counting. So in reality, it’s probably even more. So this will have a very strong impact on the poor and on the middle class. Simply put, the regime doesn’t have a lot of options except to reduce social spending. Now they are refraining from doing that, because they know if this happens, this will be just way too much. Inflation is around 40%. It won’t get less, there is a lot of pressure on the pound, which lost about 18% of its value a couple of months ago. And I don’t think they have a lot of choices except to devalue the pound even further which means that inflation will increase more. And just a reminder, Egypt is the largest importer of wheat in the world which means that, as the currency weakens, food prices increase significantly. So they are in a very difficult situation and the majority will suffer significantly, unfortunately.

Sisi ringmaster1

The model that President Sisi is promoting is highly reliant on the military. Now, should the economy fail as drastically as you suggest it will, is he at risk of a coup having carried out one himself in 2013 against then President Mohammed Morsi?

I think that’s unlikely to happen, because the military doesn’t seem to be factionalized. He doesn’t seem to have to contend with another centre of power within the military establishment, at least one that I can see. We have to remember that the regime is a complete black box. Second of all, there is no popular support for a coup. So in order for a coup to work there has to be some sort of a popular backing somewhere.

Thirdly, the military has benefited greatly from his economic model. And they don’t have a civilian counterpart or a civilian partner. If there is a coup, the military will face difficulties to whitewash the coup or to hide behind the civilian government.  There are significant difficulties in having a change from the top. So I don’t think that that’s likely. I think the regime will continue the way that it is. It’s very resistant to reform.

The military has insinuated and entrenched itself into many economic sectors. Can you give our listeners an idea of how that model works?

Basically, the model is rather simple, but actually quite devastating. After the coup of 2013 there was a change in economic policy, where growth was debt-driven through massive investments in infrastructure, things like road transportation hubs, and this was either directly executed by the military itself, or the military manage the funds. This opened up the pathway for the military to expand dramatically and not just in the implementation of the projects. They were able to also expand in what is considered to be the domain of the private sector. This means that they have tentacles in the consumer goods area,  they have a very large stake in the cement industry, in steel production, in marble and quarries.  The military elites control the state and through the control of the state  change economic policies, laws, regulations in a way that allows them to control the pace and the direction of economic growth and to accumulate wealth.

The difficulty as well is that this is not under civilian control at all.  It is really a black box. We don’t know the size or the complexity of the military’s economic activity. But what is clear is that it is growing. And they are also employing coercive tactics against the private sector. Prominent businessmen were imprisoned.  Here I’m referring to the Thabet family, jailed because they wouldn’t sell their company to the military. So there is a shrinkage and underperformance of the private sector. The difficulty in this is the taxes. So as far as we know, the military doesn’t really pay any taxation, which is one of the reasons for the financial situation that the country is now facing. The tax base is very weak. The taxation system is very regressive. And it is mostly tailored towards consumption, which weakens the market in the country. And also, Egypt’s exports are not very competitive. So yes, it’s a vicious cycle which the military’s economic model is just making worse and worse.

Sisi has friends in high places, not least of which are the Americans. But let’s focus first on another close ally, and that is Israel. How vested are the Israelis in the Sisi presidency?

The Israelis, I would venture to say, are one of Sisi’s closest allies, if not the closest ally. They are very supportive of the regime and his presidency. Sisi is seen as a dependable ally. There is no threat coming from Egypt. And he has been very cooperative in terms of blockading Hamas, co-opting it, controlling it. So yes, the alliance is extremely strong. It is at a historic high. It has very strong diplomatic support. As well there are very close economic ties through gas deals. Basically Israeli gas exported to Egypt where it would be liquefied and then sold into Europe. So the economic ties are very strong, the diplomatic ties are very strong and – and this is very important –  the military cooperation is very strong, especially in Sinai and in Gaza.

His other friends in the region are Saudi Arabia and the UAE. How engaged are they with Egypt? And I want to ask you too about the two islands in the Red Sea, Tiran and Sanafir that Sisi has agreed to turn over to Saudi Arabia.

They are both heavily engaged. So just as a reminder, they were one of the primary backers of the regime after the coup, and they’ve been very financially generous, basically giving the regime billions. One estimate is that between 2011 and 2019, Egypt received a bit over 90 billion dollars in loans and in aid. Most of this aid had very little strings attached to it. So it was extremely crucial, especially in the first years of the regime’s inception. Without it, I think the regime would not have been able to survive. The economic situation was extremely dire.

But the difficulty here is that the regime did not deliver what it promised it would, aside from repressing the  Muslim Brotherhood. It didn’t really follow up in terms of Saudi and Emirati regional wars and regional adventures. So for example, Egypt didn’t really get involved in Yemen. In Libya, Sisi tried to follow a bit of an independent policy. Even now, when they’re talking about what they call a NATO in the region, Egypt seems to be extremely reluctant. There is no desire for foreign adventures. Egypt also doesn’t see Iran as a real threat to it.

On the transfer of the islands, they seem to be on the way to be officially transferred to Saudi sovereignty and some reports claim it is the first step towards normalization of relations between the Saudis and the Israelis, since maintaining the passage through the islands was one of the stipulations in the (1979) peace treaty between Egypt and Israel. Normalization would not  be particularly shocking, since it has been a trend now for the past few years. But it would be a historic move towards cementing this alliance between the Israelis, the Saudis and the Egyptians.

So to sum up, then, the Israelis require a cast iron guarantee from the Saudis that for the islands to be transferred, they need this agreement that they will have free passage, which was included in as you said, the 1979 peace deal, and that once they have that agreement from the Saudis, that will facilitate the move towards Saudi Arabia recognizing Israel and joining the Abraham Accords.

 Correct. And can I just add one more thing on Sisi’s economic options. The model for the Saudis and the Emiratis is changing. Rather than just give aid and loans, it is towards direct investment in state-owned assets. In April Sisi said that he’s planning on privatizing 40 billion  dollars worth of the public sector, 10 billion a year for the next four years. The primary buyers would basically come from the Gulf, they would be the main investors.

But if Sisi  needs a massive bailout, and it looks like he will, will the Saudis and the Emiratis rush to his aid? 

I really do not believe so because as I said he did not deliver what he promised to deliver. But he’s in a very difficult spot.  Will he promise them again that he will intervene more in any of their foreign policy adventures? He’s not a credible ally. He did not do what he said he would do. So the most likely scenario is that he will probably try to get a bailout from the IMF, which means that there will be very strong austerity measures. The question is will the IMF address the elephant in the room, which is the military’s role in the economy? And if it does will that somehow open up the path towards demilitarization of the economy? That’s also extremely unlikely because Sisi has domestic constraints. He has put all his eggs in the military’s basket. What is unique in this regime is that since 1952 there was always a civilian counterbalance, at least something that was there. Egypt now does not have a ruling party, which means that the entire backing of the regime comes from the military. If he is not able to appease the military and for some reason they decided he should go then he’s going to go the following day. He cannot freely reduce their size in the economy; the consequences for him would be catastrophic. And by now, they are so entangled, that it’s not a policy decision that can be taken swiftly and it would take a long time to implement.  And it would require a lot of changes in the laws and in the regulations, as well as bureaucratic changes in the structure of the state, how funds are being managed, tax reform, all of these are massive undertakings that he does not have the political capital to do on his own. He doesn’t have the constituency to back him in that. So in a way, he has been too successful. He set out to build a military- dominated state and military-dominated regime and military-dominated economy. And he was so successful, that it will be very hard for him to actually backtrack. So even if he wants to, I don’t think he can; he doesn’t have the power to.

Yes, Sisi is the face of the military dictatorship. Yes, he is very powerful, but he cannot decide on his own what to do. There would be stiff resistance to it. The military is not going to back down. Yet there is no perception of the danger that is coming to hit them. So it’s a question of how deep the economic crisis will be. And what will be the popular reaction to it. That’s the number in the formula which not a lot of people are thinking about. Who knows how it will look? There is this idea that the people will not revolt anymore but who knows? This is very hard to tell. So if there is popular pressure maybe it will lead to some changes. But the regime itself has, let’s say, barricaded itself. They have made it extremely difficult for popular pressure to work in the way it previously did.

Donald Trump famously called Sisi his ‘favourite dictator.’ But in the Biden presidency how tight is the relationship between Cairo and Washington?

In the beginning, Biden tried to distance himself from Sisi, but that didn’t really last long. Now it’s clear that Egypt is not on the top of Biden’s list, nor is the Middle East. The focus is not there.  And there is no fundamental change in policy besides suspending 300 million  dollars of US aid out of 1.3 billion and I believe they even released 150 million of that later on. So the sales of arms continues, aid is flowing. There is no real material change besides some rhetoric of saying that he won’t follow Trump’s policies. But in reality, on the ground, the policies are very similar.

And finally Maged, there are those who will look somewhat askance, shall I say, at the fact that the next climate conference in November is in Sharm el Sheikh with President Sisi presiding. It does seem a tad incongruous.

Indeed, I don’t know who thought this would be a good idea to have an international climate conference in a country ruled by a military dictatorship! And also Sisi’s green record isn’t particularly stellar. The regime has been consistently trying to change the urban space by basically bulldozing over the green spaces to build more bridges and roads. And I’m very interested to see how the regime is going to deal with protests during that time. Because it’s an international conference with activists in a place that has jailed protesters for the past nine years now. I think the foreign minister said that they’re going to have a hall or a designated area for protesters. So yes, it’s a very old decision. And again, it’s really showing the level of international complicity, of looking the other way when it comes to the regime and its policies. So it’s very disheartening. It’s very depressing that the regime isn’t even being sanctioned diplomatically.

Scroll to Top

Access provided by the Bodleian Libraries of the University of Oxford