Stratocracy, the economy and the Egyptian elections

Seven years after the Arab Spring, Egypt is facing more political, economic and security challenges as it prepares for a presidential election on March 26-28 that will likely confirm incumbent President Abdel Fattah al-Sisi. Since July 2013, when Islamist President Mohamed Morsi was overthrown, the former field marshal Al-Sisi has been the local strongman who has led an increasingly authoritarian regime. Although he has promised Egyptians stability and economic prosperity, even political stability seems to be a distant prospect.

Al-Sisi appears to be the most powerful man in the country, but according to an article published in Foreign Policy in 2016, he “doesn’t have any formal political institutions behind him at all”. In fact the political fate of the President is closely connected to traditional civilian powers in Egypt, such as the judiciary and business élites, as well as to the national police and the Egyptian Armed Forces (EAF). The latter especially are the prime sources of legitimacy determining policies for the President and for their own interests. In this way, the restoration of what we should technically call “stratocracy” has made it possible to open a new, durable season of rule, in which the deep state has reasserted control under a new strongman who pursues its policies to rebuild Egyptian politics and its economy.

In light of this, it is no wonder that the EAF are silent actors that control the domestic agenda, seeking to strengthen their role in the socio-economic transformations of the Egyptian state. In fact, while the civilian powers tried to curb the influence of the EAF on the political plane, the armed forces seek to preserve their economic interests, becoming the biggest agent in the national economy. This situation has worsened with the second post-revolutionary transition. Basically, the EAF pledge their loyalty to Al-Sisi in return for a green light to implement their dominance in Egypt’s economy. Even with the official statement claiming that military enterprises represent no more than 2% of national GDP, no one knows precisely the extent of the Egyptian military’s economic holdings.

Unofficially the armed forces’ state-owned companies may account for up to 20-40% of GDP, according to an article published in The New Arab. In fact, the EAF manage a global economic empire, ranging from cinema to publishing, media and new technologies, from construction and housing to agriculture and even to production of medical and veterinary vaccines. Under the Al-Sisi presidency, the role of the military companies has expanded rapidly and they have been commissioned with important projects, such as the  nine billion dollar New Suez Canal expansion – that was entirely overseen by the EAF – or the ambitious plan to create 1.5 million acres of farmable land in the area of Sahl Baraka, near the town of Farafra, in the Western Desert, as well as to build two “smart” and ecological cities in Aswan and Alamein or the new administrative capital near Cairo.

But the recent political and economic upheavals following the two revolutions and the policies conducted up to now have had numerous negative effects on the state’s economic performance and the economic conditions of a large part of the Egyptian population, highlighting an inappropriate and uncompetitive system. If the financial support of the Gulf countries artificially defused the risk of the system’s default, the government’s inertia has created tension between the traditional civilian powers and the regime. Moreover the “Sisinomic” model, that is, a combination of deflationary policies and subsidies, has demonstrated that these measures won’t be enough to transform Egypt or to face the many challenges lying ahead. In fact, despite a profound desire to reform the country, every government since 2011 has invested heavily in infrastructure (such as highways, airports, power stations, desalination plants, fisheries and agricultural projects) and has avoided harsh political measures (such as floating the currency and cutting subsidies) in order to retain popular consensus. Nevertheless, the economic and financial crisis has continued to deteriorate, exacerbating old problems such as increasing energy requirements, rising debt and inflation, high rates of poverty and unemployment (in particular among young people), widespread corruption and large-scale demographic transformations.

Driven by political choices, especially by fear of further revolution, the Egyptian government has strengthened its authoritarian stranglehold on state structures through a combination of repression and co-optation. At the same time, Cairo authorities signed a 12 billion dollar loan agreement with the International Monetary Fund (IMF) in November 2016 that could restore confidence among foreign investors and permit structural economic transformations, such as the creation of a large private sector that would reduce state interference in the economy. The final goal of the IMF’s three-year Extended Fund Facility program is to ensure new socio-economic measures in terms of justice, public administration and transparency. It should foster good governance as well as encourage wider democratic participation in order to repair the macro-economic system. At the same time, it should guarantee the operational and political security of the country while strengthening a more comprehensive reform process.

To receive these funds the Egyptian government had to depreciate the local currency and further cut energy and food subsidies (representing around 10% of the annual national budget) in order to improve the country’s foreign reserves and help central authorities to cut spending, deficit and debt. Together these measures created considerable hardships for the population, such as increases in food prices and the inflation rate. To this is added the discovery and development of an offshore natural gas field in the Mediterranean near the Egyptian coast (the Zhor field), which will potentially reduce the country’s trade deficit, ensuring both the domestic supply of energy and gas exports in the region. From this standpoint, the latest data on Egypt’s economic growth show a restoration of economic stability despite being held back both by uncertainties in domestic politics and by hesitation about necessary structural economic changes, as well as by regional turmoil.

In any case these positive changes in the macro-economic framework have no significant effects for the millions of Egyptians who continue to suffer from long-term structural problems. In fact, these vulnerabilities (heavy demographic growth, unfair redistribution, poverty, unemployment and corruption) continue to grow, exacerbating other direct causes of underdevelopment and fuelling the anger of millions of people who have been denied benefits. The fuel and bread riots, as well as the strikes – ever more frequent in the biggest and most populated cities of the country – demonstrated their dissatisfaction and resentment. And economic reforms have sharply increased the cost of living of the Egyptian middle class, a large group of voters for the incumbent President.

In conclusion, Al-Sisi’s popularity has not been noticeably affected by protests and social riots, according to a study by the Baseera Center and an article in the Egypt Independent, but political and structural problems have still not been resolved and cannot be ignored. And it is right here that Al-Sisi faces his greatest challenge. In fact, if economic growth should not improve overall Egyptian welfare, the public’s lack of confidence in the President and the government will increase exponentially, making his new mandate significantly more complex than his first.