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2018 Annual Assessment

Egypt still faces formidable economic and security problems. Sisi was elected to another term in late March 2018, signaling the continued implementation of an economic reform program that has proved somewhat beneficial to the Egyptian economy, in terms of attracting investors, introducing foreign money, and improving the country’s credit rating. However, the recovery plan has resulted in higher prices for basic goods, and high inflation (30.7 percent in 2017 versus 13.8 percent in 2016). The terrorist attacks that occur from time to time still make it hard to attract tourists and investors. At the current birthrate (2.6 percent), Egypt’s population will grow from 99 million today to 120 million in 2030. Half of the country’s residents live on incomes of less than $2 per day. Unemployment stands at 13 percent; for young people the rate is more than twice as high. Egypt, the world’s largest importer of wheat, is forced to import over 60 percent of the food required for its inhabitants. The International Monetary Fund has made aid to Egypt ($12 billion) conditional on significant economic reform. The Egyptian government, which agreed to float the country’s currency (causing it to lose half its value in 2016) and to cut its subsidies of basic goods, faces a thorny dilemma: privatization would hurt the army, which currently controls a large portion of the economy. The Egyptian government would thereby be undermining the entity that provides most of its support. At the same time, the cancelled subsidies – one of the IMF’s main conditions – are driving basic product prices upward. This, in turn, raises the specter of unrest within the Egyptian public, which lives under a regime whose attitude toward democracy and human rights is even harsher than that of Mubarak (a situation that is not drawing American criticism as it did in the past).

Egypt is treading a fine line. It is trying to preserve its relationships with the U.S. and Saudi Arabia, for the sake of financial and security support. However, it is also flirting with Moscow. Putin’s recent visit to Cairo (December 11, 2017) yielded reports of an agreement on the construction of a Russian nuclear power plant in Egypt, at a cost of $30 billion, and of a potential agreement that would allow Russian fighter jets to make use of Egyptian airports.

Egypt has yet to vanquish radical Islamic terrorism, including in the Sinai Peninsula. An attack on a northern Sinai mosque took the lives of 300 people (November 24, 2017). The Egyptian defense and interior ministers narrowly escaped an ISIS missile fired on their helicopter at El Arish (December 19, 2017). The threats of terrorism and political Islam, the still-raging war on ISIS in Sinai (which to date has resulted in hundreds of deaths of Egyptian troops), and the danger posed by Iranian subversion, are laying a groundwork for closer cooperation with Israel. The international media have reported extensive intelligence assistance from Israel, and Israeli willingness to allow deviations from the peace treaty so that Egypt can deploy effective weapons systems in its struggle against Sinai-based terrorist organizations. There have even been reports of Israeli air strikes, numbering in the dozens, on Islamic terrorist entities in Sinai, intended to assist Egypt and with Egypt’s approval.13 In addition to the security cooperation (which also includes Egyptian efforts to rein in Hamas), economic cooperation is emerging. This past February, for example, an Egyptian (non-governmental) company was allowed to purchase gas from the Tamar and Leviathan reservoirs in the amount of $15 billion over a ten-year period.

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