Post-Revolution 'Disastrous' for Egyptian Economy

The post-revolutionary period has proven disastrous for the Egyptian economy. The fact that the growth rate has fallen does not measure up to the fact that all new political forces have yet to devise concrete and viable economic policies, writes Samir al-Tannir. The author argues that a socialist system is surely on the horizon in Egypt.

al-monitor A man sells bread near the Interior Ministry in Cairo February 7, 2012. Photo by REUTERS/Mohammed Salem.

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Mar 9, 2012

The January 25 revolution in Egypt had important economic implications. These ought to be examined given that the economic [dissatisfaction] was one of the most important reasons behind the revolution along with the more general widespread malaise reigning in Egypt, particularly among young people.

The fact is that the toppled regime failed to provide a decent life for the majority as it was busy supporting the corrupt elite. Therefore, the young took to the streets to demand "Life, freedom and social justice," three basic rights of which they were deprived during the era of Mubarak.

The grievances that led to the January 25 revolution were primarily political, but economic problems played their fair share as well. The fraudulent elections of 2010, the state of emergency - which lasted for decades - and the absence of freedom of expression and assembly are all factors which that stripped Egyptians of their sense of dignity. Egyptians also blamed their government for the high rates of poverty and unemployment among young people as well as for corruption, illiteracy and the sharp differences between rich and poor.

The revolution did not negatively impact the economic situation in the country. It may have crippled production for a few months, but it did not have long lasting effects, especially considering that it was peaceful and did not [damage] the country's infrastructure. This means that the revolution's economic cost was almost negligible. The post-revolutionary phase, however, has had a clear negative impact on the economy. This has been revealed by deteriorating economic indicators, which can be linked to one major factor: The post-revolutionary government and the military council's poor management of the economic situation.

According to preliminary estimates, the growth rate in 2010 was at 5.7%. The events that took place in 2011 affected most economic sectors, especially tourism, exports and remittances from abroad. Moreover, the local currency and on the government's reserves came under unforeseen pressure because of [monetary] transfers to foreign countries and the flight of certain foreign and Arab investments. This all negatively affected [Egypt’s] balance of payments. The [sectors mentioned above] are the main sources of local income in foreign currency, and they are used to pay for external obligations, be they foreign debts or import payments.

One of the direct implications of [the post-revolutionary period] is that Egypt’s GDP growth rate will fall, with initial expectations saying that it will drop to 3.5%. Indirect implications mainly emanate from the flight of some Arab and foreign investments. A large number of Egyptian businessmen were more harmful than useful for the economy and its reputation. There is no doubt that the Egyptian economy will be negatively affected in the short term, but these losses can be compensated later on at breakneck speed.

The mismanagement of the economic situation as a whole was the result of the post-revolution ministers' desire to meet the social demands of the Egyptians all at once. This either happened out of deference to the political pressure, or out of desire to gain [the] support [of the people], despite the lack of necessary means to [follow through on these policies].

Numerous resolutions were announced, but remained ink on paper. Such was the case with the announcement of governmental appointments and the rise in wages, which were supposed to [help] the majority of the Egyptian people.  Demonstrations then increased when these promises went unfulfilled.

The Egyptian government, which will be formed in 2012 after the conclusion of the presidential elections, will face major economic challenges. In fact, in addition to containing the massive public debt which continues to rise, the new government must ensure that investments, economic growth and job creation lines up with demographic trends. The projected growth of the labor force requires the creation of 700,000 new, sustainable and productive job opportunities per year in both the public and private sectors.

Solidifying a vision of the new economic system is of the utmost importance. While this has been largely neglected by the various political forces, it is expected to receive attention in the coming phase.

The programs of Egyptian political parties reveal some of the Egyptian economy’s future strategic pillars. [These programs] are all initially based on the quest to find a new economic system that does not rely entirely upon the free market, but rather also on government intervention and the need to curb privatization.

A clear socialist trend looming on the horizon. In fact, the media blamed capitalism for what happened in Egypt and Tunisia. It attributed the spread of unemployment and the growth in corruption to the marriage of money and power.

A comprehensive economic strategy that takes into consideration the social dimension of each policy, and not only its economic returns, must be devised. Furthermore, attention must be shifted towards those sectors that can create jobs and absorb the bulk of the workforce.

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