Current administration's future hinges on upcoming presidential election in Egypt

 

In comparison to the years before 2011, Egypt’s post-revolutionary period has been defined by political upheaval and dynamism. The country has adopted a new constitution, moved to a unicameral legislature, had two presidents – Mohamed Morsi, who was appointed in the country’s first free presidential election and departed two years later in 2013, and the current serving president, Abdel Fattah El Sisi – and has experienced a degree of parliamentary assertiveness rarely seen in the 30-year rule of the former president, Hosni Mubarak, when democratic principles were largely absent.

However, as such agitation is beginning to settle, the country is faced with a familiar set of problems: the political engagement of Tahrir Square – the focal point of political demonstrations over the past several years – has been largely extinguished, the government has instituted a state of emergency in the face of a persistent security threat and economic anxiety has gripped much of the electorate. The political challenges are clear, however, the way forward has yet to be defined.

Elections

Despite these uncertainties, the current administration has persisted with an optimistic vision for national renewal which is based on economic reform, large-scale investment and political stability, and 2018 will provide a particularly important test of this ambitious plan.

As the country seeks to return to stability and attract investment, Egyptians will go to the ballot box in 2018 to decide who will lead the country for the next four years. In early January 2018 the national election commission announced that the next presidential election would be held from March 26 to March 28. If no candidate receives 50% of the vote, a runoff will be held from April 24 to April 26.

Soon after this, El Sisi announced that he will seek a second, and final, term. In the last election in 2014 he won in a landslide, receiving 96% of votes. In the upcoming elections he will face a challenge from Khaled Ali, a human rights lawyer, and Essam Heggy, a space scientist and the former governmental advisor for scientific affairs.

In early January 2018 Ahmed Shafik, the former prime minister and a strong contender for the presidency, pulled out of the election race, saying he did not feel he was the right candidate for the role. This followed the arrest of another potential candidate, Colonel Ahmed Konsowa, in December 2017, on charges of “stating political opinions contrary to the requirements of military order.”

Economic Agenda

Like the 2015 parliamentary elections, which had a turnout of just 26.56%, enthusiasm for the upcoming election may not be especially high. Nevertheless, the issues at stake are clear. To a large extent the election will serve as a symbolic referendum on President El Sisi’s performance relative to the economy, and his approach to security matters over his four-year term.

The El Sisi administration has attempted to improve economic order and stability in the country, and there have been piecemeal attempts to improve public finances, reduce the size of the state and to make the investment environment more attractive. This has included a subsidy reduction programme, which has led to a significant increase in the cost of fuel; the granting of a $12bn three-year loan programme from the IMF; and the floatation of the Egyptian pound, which was carried out as part of the IMF reform programme. The currency flotation, enacted in November 2016, led the pound to plummet, with its value halving shortly after.

However, the IMF has expressed confidence in the process, suggesting that the reform agenda was engendering, “macroeconomic stabilisation and return of confidence.”

Releasing another $2bn tranche of the $12bn loan in November 2017, the IMF stated, “While the reform process has required sacrifices in the short term, seizing the current moment of opportunity to transform Egypt into a dynamic, modern and fast-growing economy will improve the living standards and increase prosperity.”

Indeed, the IMF was quick to point out that in FY 2016/17, GDP growth was 0.7 percentage points above forecast at 4.2%, the current account deficit had shrunk in US dollar terms and portfolio and foreign direct investment (FDI) was up.

Ordinary Egyptians have not always shared this same optimism, however. While many of these reforms are seen as necessary, they have also brought further – potentially short-term – economic pain to many Egyptian citizens.

Inflation

Following the currency flotation the country experienced high inflation, reaching 31.5% in April 2017, the highest level since 1986. More than 22m Egyptians live in poverty, and the subsidy reduction for basic commodities like sugar and cooking gas has disproportionately affected these citizens.

Even before the rapid surge in inflation, price hikes associated with subsidy reduction were leading to significant political ramifications. In October 2016 the Egyptian Centre for Public Opinion Research – Baseera – found that President El Sisi’s approval rating had fallen 14 percentage points (to 68%) in the space of two months following the price increases.

Furthermore, it is not only the poorest Egyptians that have been affected. The middle class has also been negatively impacted by wage stagnation and the rising cost of living. While the official unemployment rate dipped below 12% for the first time since 2011 in April 2017, youth unemployment remains high, standing at 33.1% in 2017.

One indicator supporting the IMF’s positive outlook is the sharp drop in inflation that occurred in December 2017. Urban consumer inflation fell to 21.9% that month, compared to 26% in November 2017, which was the lowest reading since the flotation of the Egyptian pound November in 2016. According to Amr El Garhy, the minister of finance, inflation should fall as low as 10-12% by the end of 2018 and below 10% in 2019. While the IMF-led measures might put the economy on a surer footing in the long term, they have resulted in instability in the short term to medium term.

It is not clear what the political cost will be for the current administration. There is no consensus on the best way forward, and the government has been criticised for both going too far with its reform agenda and also not going far enough. The government and the president have faced parliamentary opposition to some of their boldest reform efforts.

For example, the Parliament has opposed civil service reform that would reduce the size of the country’s bureaucracy and the burden it places on the public finances; Egypt has 7m civil servants whose salaries account for 25% of the annual budget.

At other times, the government has appeared to concede that its austerity measures are untenable. In May 2017 the government announced an increase in civil servant salaries and state pensions in a bid to soothe discontent over austerity.

New Investment Law

However, the government has generally adhered to the IMF blueprint, and despite some opposition, has been able to push through much-needed legislation. For example, in June 2017 the president was finally able to approve a new investment law after trying to pass this kind of legislation for two years.

The new law offers protections for foreign investors, cuts bureaucratic procedures and outlines a range of incentives, including tax breaks, for new investments. This includes a 50% tax discount for investment in underdeveloped areas and rebates for industrial projects that begin production within two years of land acquisition. It also includes specifications on how long the government can take to approve licences and clearances for the first time.

The Ministry of Investment also hopes to launch an electronic investor map, providing region-specific information about investment incentives and procedures. “(Investors) want to look at a comprehensive map where they see different opportunities and can compare if it’s worth it to invest in Upper Egypt, what are the incentives provided and what is the proximity to the nearest port,” Sahar Nasr, minister of investment and international cooperation, told international press in June 2017. In the same month, the government expressed confidence that the new regulations would help it surpass its $10bn FDI target for 2017. It is unlikely that the full effects of this legislation will be felt before the Presidential election in March 2018. However, the potential uptick in investment and a concomitant increase in employment opportunities throughout the country is a sign of the government’s plans and ambitions.

Health Insurance

The government got another legislative win in December 2017 with the passage of a new health insurance law. The regulation makes health insurance mandatory through the General Authority for Health Insurance and will see the gradual phase out of state-funded medical care. The government will also cover the cost of insurance for Egyptians living below the poverty line.

The move is seen as a means of both improving the financing mechanisms for health care in the country and also improving the provision of, and access to, services for all Egyptians. In early January 2018 Mohamed Maait, the deputy minister of finance, told regional media, “Implementing a comprehensive health insurance law will contribute to achieving social peace and reducing poverty rates, especially since Egypt has very low public spending on health. Patients pay around 75% of the cost of health services provisions in Egypt” (see Insurance chapter). It should also improve coverage as less than two-thirds of Egyptians had health insurance coverage as of the end of June 2017. The expanded insurance scheme will cover a range of diseases and procedures that are not currently included in insurance policies, and extend the hospital network that is covered. Currently, only six hospitals in Cairo are in network for government health insurance.

However, the new legislation is not without its critics. The law has been criticised for a lack of public consultation and the speed of its passage. Furthermore, groups such as the Egyptian Medical Syndicate, and political parties such as the Popular Alliance and Al Tagammu, have expressed concern that the new law will lead to the complete privatisation of medical provision.

“The bill is contrary to the principle of national health security,” Ehab El Taher, secretary general of the Egyptian Medical Syndicate, told regional press. “The new system requires [the government] concluding fixed-term contracts with government hospitals based on specific quality standards, which would exclude government hospitals from the new health insurance plan in favour of private hospitals.”

As such, the new legislation – like the government’s reform agenda more generally – could be something of a political gamble. Although there has been consensus on the need for overall health reform for some time, it remains to be seen whether or not this reform will address the system’s deficits and gain popular support ahead of elections.

Security

However, the El Sisi administration will not be judged on economic stewardship alone. Another important issue for the Egyptian electorate which is closely connected to socio-economic well-being is the country’s security situation. Here, too, the government has had mixed success.

In the first quarter of 2017 Russian commercial flights to Egypt resumed following the imposition of a ban after a Russian charter plane was shot down over the Sinai Peninsula in October 2015. The government lobbied hard for the resumption of flights and had to introduce a number of new security measures at the country’s airports. The Russian decision is seen as a sign of returning international confidence in Egypt’s security situation and provided a boost to an ailing tourism industry. Tourism arrivals fell from 14.1m in 2010 to 9.1m in 2015, according to World Bank data. Visitor numbers then dropped to 5.4m in 2016, however, a senior government official told local media in January 2018 that the number increased to 8.3m in 2017.

While the tourism industry has seen an uptick in recent times, security threats have not been completely extinguished. Indeed, there have been a number of attacks on Egypt’s Coptic Christian population in 2017. This included attacks on churches in Alexandria and Tanta on Palm Sunday on April 9, 2017, killing 45 people, and a shooting targeting a Cairo church and Christian shop, killing 11, in late December 2017. Following the Palm Sunday attack, President El Sisi declared a state of emergency in the country. The parliament extended the state of emergency for another three months in January 2018. This is, at least in part, a recognition that the security challenge has yet to be fully won.

Neighbouring Libya also poses a challenge in terms of security. Since 2014 the El Sisi administration has supported the Libyan National Army (LNA) of Khalifa Haftar, a move designed to help drive out Islamists and militants from eastern Libya and the Egyptian border. In May 2017 the Egyptian military launched airstrikes against militants in Libya in response to an Islamist attack on Coptic Christians in Minya in Upper Egypt.

While the security threat in Egypt is mainly driven by domestic groups in places such as Sinai, Upper Egypt and Cairo, the Egyptian state sees a link between activity in the country and Islamist militants in Libya. A 2016 UN report also noted that funds from sources within Libya have been transferred to Wilayat Sinai, the so-called Islamic State’s Sinai offshoot. Given these concerns, Egypt has been quite active and vocal on the issue of Libya. The government has lobbied the UN to lift the arms embargo on Libya, so that it can support the LNA in its fight against militants in the east. It has also hosted Haftar in Cairo in a show of support for the LNA. However, Egypt’s position has not yet been backed by the international community.

Outlook

The March 2018 election comes at a critical time for the country. While there has been much progress since the last presidential ballot, including dramatic economic reforms and an improvement in the investment climate, the country is still affected by a number of familiar problems. Whether the combination of large-scale disengagement and a desire for stability among the politically involved electorate will allow for political continuity remains to be seen.

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This article is from the Country Profile chapter of The Report: Egypt 2018. Explore other chapters from this report.