Egypt's Economy Is No Longer the Problem, and Not Our Problem

Between the February 2011 fall of Egyptian President Hosni Mubarak and the July 2013 military coup that ousted the ill-fated Muslim Brotherhood regime, I published nearly two dozen articles contending that Egypt’s economy was the problem. Egypt is a banana republic without the bananas, dependent on imports for half its caloric consumption. The foreign policy establishment ignored Egypt’s economic free-fall, focusing its tunnel vision on the players on the political stage. The liberal internationalists of the Obama administration agreed with the neoconservatives that the “Arab Spring” would give rise to a new era of Muslim democracy, and both John Kerry and John McCain counseled patience and sympathy for Egypt’s Islamists. That this was delusional is demonstrated by events: the majority of Egypt’s adult population, nearly 40 million people, took to the streets to demand the Brotherhood’s ouster in the summer of 2013.

Now, long after the fact, comes Steven Cook of the Council on Foreign Relations, warning of Egypt’s impending insolvency and urging American aid to prevent it. In what the CFR calls a “Contingency Planning Memorandum,” Dr. Cook writes:

Egypt is experiencing a deep economic crisis. The country’s foreign currency reserves are less than half of what they were before the January 2011 uprising, threatening Egypt’s ability to pay for food and fuel. Egypt’s budget deficit is 14 percent of gross domestic product (GDP) and its overall debt, which is the result of accumulated deficits, is more than the country’s economic output. In this difficult economic climate, roughly 45 percent of Egyptians live on less than two dollars per day. Inflation, which reached as high as 12.97 percent after the July 2013 military coup, is currently at 11.4 percent. Tourism revenue—traditionally a primary source of foreign currency along with Suez Canal tolls and remittances from Egyptians working abroad—is less than half of what it was in the last full year before the uprising. Foreign direct investment has dried up outside the energy sector. Unemployment remains high at 13.4 percent. Among the unemployed, 71 percent are between fifteen and twenty-nine years old. This economic weakness makes it politically difficult to address the problems that contribute to a potential solvency crisis because the necessary reforms will impose hardship on a population that is already experiencing economic pain.

He wants the US to resume food aid, and he wants Egypt to come to terms with the International Monetary Fund — this after the Obama administration suspended military aid, and the Saudis paid for $2 billion of weapons from Russia. It is laudable that Dr. Cook has noticed Egypt’s economic problems, but situation has since changed. First, the Gulf States are financing the country’s emergency needs and will continue to for some time, because the Sunni world cannot afford to let the most populous Arab country collapse while it is trying to position itself against Iran.

But the gravest oversight in Dr. Cook’s encomium is to assume that the vacuum left by American blundering will continue indefinitely. A brief item from the Middle East News Service indicates how wrong this is:

Chinese Ambassador to Egypt Song Aiguo said the investment volume between his country and Egypt hit 10 billion dollars in 2013. Speaking at a joint press conference with the Egyptian tourism minister in Hurghada, he said the two-way investment will grow as China lifted its travel warning for Egypt in December. He said 3,000 Chinese tourists visited Egypt last month.

More to the point, Egypt and China earlier this month signed an $800 million memorandum of understanding for the construction of high-speed rail from the country’s northern borders down to Aswan. China will invest $1.5 trillion in Africa during the next 15 years by some estimates, and Egypt is the land bridge to Africa.  Egypt will be a spur on the New Silk Road that China is building from Beijing to the Bosphorus.

After three years of hallucinations about the future of the Middle East, we have woken up to a different world with a new set of players and a new set of problems. We have dealt ourselves out of the game and appear condemned to watch helplessly as others play — or, more likely, not to watch at all, for the foreign policy establishment seems oblivious to the great changes around them. The only consolation is that we no longer will require the services of Egypt experts at our thinktanks.