The Ruining of Egypt

From The Economist
IN EGYPT they are the shabab al-ahawe, “coffee-shop guys”; in Algeria they are the hittistes, “those who lean with their backs to the wall”; in Morocco they go by the French term, diplômés chômeurs, “graduate-jobless”. Across the Arab world the ranks of the young and embittered are swelling.

In most countries a youth bulge leads to an economic boom. But Arab autocrats regard young people as a threat—and with reason. Better educated than their parents, wired to the world and sceptical of political and religious authority, the young were at the forefront of the uprisings of 2011. They toppled rulers in Tunisia, Egypt, Libya and Yemen, and alarmed the kings and presidents of many other states.

Now, with the exception of Tunisia, those countries have either slid into civil war or seen their revolutions rolled back. The lot of young Arabs is worsening: it has become harder to find a job and easier to end up in a cell. Their options are typically poverty, emigration or, for a minority, jihad.

This is creating the conditions for the next explosion. Nowhere is the poisonous mix of demographic stress, political repression and economic incompetence more worrying than in Egypt under its strongman, Abdel-Fattah al-Sisi.

The Middle East is where people are most pessimistic and most fearful that the next generation will fare worse than the current one. Arab populations are growing exceptionally fast. Although the proportion who are aged 15-24 peaked at 20% of the total of 357m in 2010, the absolute number of young Arabs will keep growing, from 46m in 2010 to 58m in 2025.

As the largest Arab state, Egypt is central to the region’s future. If it succeeds, the Middle East will start to look less benighted; if it fails, today’s mayhem will turn even uglier. A general who seized power in a coup in 2013, Mr Sisi has proved more repressive than Hosni Mubarak, who was toppled in the Arab spring; and he is as incompetent as Muhammad Morsi, the elected Islamist president, whom Mr Sisi deposed.

The regime is bust, sustained only by generous injections of cash from Gulf states (and, to a lesser degree, by military aid from America). Even with billions of petrodollars, Egypt’s budget and current-account deficits are gaping, at nearly 12% and 7% of GDP respectively. For all of Mr Sisi’s nationalist posturing, he has gone beret in hand to the IMF for a $12 billion bail-out (see article).

Youth unemployment now stands at over 40%. The government is already bloated with do-nothing civil servants; and in Egypt’s sclerotic, statist economy, the private sector is incapable of absorbing the legions of new workers who join the labour market each year. Astonishingly, in Egypt’s broken system university graduates are more likely to be jobless than the country’s near-illiterate.

Egypt’s economic woes stem partly from factors beyond the government’s control. Low oil prices affect all Arab economies, including net energy importers that depend on remittances. Wars and terrorism have kept tourists away from the Middle East. Past errors weigh heavily, too, including the legacy of Arab socialism and the army’s vast business interests.

But Mr Sisi is making things worse. He insists on defending the Egyptian pound, to avoid stoking inflation and bread riots. He thinks he can control the cost of food, much of which is imported, by propping up the currency. But capital controls have failed to prevent the emergence of a black market for dollars (the Egyptian pound trades at about two-thirds of its official value), and has also created shortages of imported spare parts and machinery. This is stoking inflation anyway (14% and rising). It is also hurting industry and scaring away investors.

Sitting astride the Suez Canal, one of the great trade arteries of the world, Egypt should be well placed to benefit from global commerce. Yet it lies in the bottom half of the World Bank’s ease-of-doing-business index. Rather than slashing red tape to set loose his people’s talents, Mr Sisi pours taxpayers’ cash into grandiose projects. He has expanded the Suez Canal, yet its revenues have fallen. Plans for a new Dubai-like city in the desert lie buried in the sand. A proposed bridge to connect Egypt to Saudi Arabia sparked protests after Mr Sisi promised to hand back two Saudi islands long controlled by Egypt.

Even Mr Sisi’s Arab bankrollers appear to be losing patience. Advisers from the United Arab Emirates have gone home, frustrated by an ossified bureaucracy and a knucklehead leadership that thinks Egypt needs no advice from upstart Gulfies—mere “semi-states” that have “money like rice”, as Mr Sisi and his aides are heard to say in a leaked audio tape.

Such is Egypt’s strategic importance that the world has little choice but to deal with Mr Sisi. But the West should treat him with a mixture of pragmatism, persuasion and pressure. It should stop selling Egypt expensive weapons it neither needs nor can afford, be they American F-16 jets or French Mistral helicopter-carriers. Any economic help should come with strict conditions: the currency should ultimately be allowed to float; the civil service has to be slimmed; costly and corruption-riddled subsidy schemes should be phased out. The poorest should in time be compensated through direct payments.

All this should be done gradually. Egypt is too fragile, and the Middle East too volatile, for shock therapy. The Egyptian bureaucracy would anyway struggle to enact radical change. Yet giving a clear direction for reform would help to restore confidence in Egypt’s economy. Gulf Arabs should insist on such changes—and withhold some rice if Mr Sisi resists.

For the time being talk of another uprising, or even of another coup to get rid of Mr Sisi, has abated. Caught by surprise in 2011, the secret police are even more diligent in sniffing out and scotching dissent. But the demographic, economic and social pressures within Egypt are rising relentlessly. Mr Sisi cannot provide lasting stability. Egypt’s political system needs to be reopened. A good place to start would be for Mr Sisi to announce that he will not stand again for election in 2018.

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