Egypt Vows Economic Reforms, But What about Politics?

From mega-projects to tax reforms, Egyptian ministers presented detailed initiatives last week to revive an economy battered by three years of upheaval and decades of neglect. Quizzed about Egypt’s political challenges, however, they had less to say.

With cameras rolling, eight Egyptian ministers opened their doors to journalists for the Reuters Middle East Investment Summit last week; that accessibility was itself a change from past decades when contact was limited and officials were aloof.

Previous administrations made big promises on the economy but rarely delivered, critics say. Discontent with their apparent detachment helped trigger a revolt in 2011 that toppled officer-turned-president Hosni Mubarak after 30 years in power.

Marking themselves out from predecessors, the ministers spoke with candor about the enormity of the challenges facing Egypt and in detail about solutions. They have already implemented subsidy cuts and tax reforms that previous governments shied away from for fear of fuelling discontent.

Those moves helped persuade Moody’s to change Egypt’s outlook from negative to stable this month, but beyond vows to hold long-awaited parliamentary polls and restore stability, talk of political reforms was general at best

Asked how Egypt could hope to lure back investors without implementing political reforms, Telecoms Minister Atef Helmy said: “Trust us as Egyptians; we really look for peace. We look for stability. We look for the welfare of our citizens… but we need people to know their boundaries… There is a big difference between freedom and terrorism.”

The stakes are high in Egypt, where militants have stepped up attacks on police and soldiers in the Sinai Peninsula since former army chief Abdel Fattah al-Sisi ousted elected president Mohamed Morsi of the Muslim Brotherhood more than a year ago.

A day after Finance Minister Hany Kadry Dimian told Reuters about his plans for tax reforms and debt reduction, at least 33 security personnel were killed in some of the worst anti-state violence since Morsi’s removal.

Egypt moved swiftly to declare a temporary state of emergency in northern Sinai and extended military trials to civilians who attack state facilities or block roads, raising fears of a return to authoritarianism.

Sisi, who won a presidential election in May, has already cracked down on the Brotherhood. Thousands of its members have been detained, many sentenced to death in mass trials that have drawn criticism from Western governments and rights groups.

Despite the recent turbulence, multinationals have largely remained in Egypt, which continues to offer relative calm in a region consumed by conflict in Libya, Iraq, Syria and elsewhere.

Many Egyptians have tolerated what critics describe as widespread human rights abuses, hoping that Sisi would stabilize Egypt after the turmoil that followed Mubarak’s fall. But how long their patience will last is an open question.

“While investor confidence has improved thanks to the relative stability brought about by the Sisi presidency, ongoing political polarization, insecurity and structural economic challenges complicate investor decision-making,” political risk analysts Maplecorfit said in a recent report on Egypt.

Asked about a new draft law regulating non-governmental organizations (NGOs) that human rights groups fear will restrict their activities and funding, Social Solidarity Minister Ghada Wali gave no details on its contents.

She promised the draft would be circulated before going to parliament but in the meantime has insisted groups register under an unpopular Mubarak-era law, raising fears that those working on advocacy or human rights would face persecution.

Parliamentary elections are the final step in the roadmap set out by Sisi after Morsi’s ouster, but without a date set they could miss the plan’s self-imposed deadline. They were due to take place within six months of the presidential vote in May.

During a visit to Cairo on Monday, U.S. Treasury Secretary Jacob Lew welcomed what he described as Egypt’s “strong initial steps” toward economic reform but urged more political openness.

“We discussed the rule of law and how creating an open political environment in which individual rights are fully respected would further bolster Egypt’s ability to attract international investment,” Lew told reporters in Cairo.

MILITARY’S ROLE

On the economy, Egyptians are closely watching Prime Minister Ibrahim Mehleb’s performance on employment and housing, issues that helped foment the anger behind the 2011 uprising.

Mehleb was realistic about how quickly problems that had built up over decades could be resolved, urging patience.

“In economics, we began to open all the files that were not opened. We don’t hide anything from the people,” he told Reuters. “This is not a cosmetic operation or making something just look beautiful. We are fixing from the roots.”

But even among major infrastructure projects, some of which are set to be showcased to investors at an economic summit in February, the changes are not as deep-rooted as they appear.

Egypt’s military, which has long played a key role in the economy, is taking a leading role in a multi-billion dollar project to expand the Suez Canal.

A new company being created to upgrade Egypt’s telecoms and internet infrastructure will also involve military-owned firms, though Helmy said they would not dominate or control it.

Housing Minister Mustafa Madbouly, whose ministry is working to meet ballooning demand and find a solution to the country’s informal settlements, said the army could also run parallel development programs.

When Arabtec Holding ARTC.DU, Dubai’s largest listed construction firm, agreed to build one million houses in Egypt in a $40 billion project, it partnered directly with the army rather than the government.

“The military has its own economic and financial arms which also have the right to do this,” said Helmy.

The military, whose budget is shielded from public scrutiny, has a business empire ranging from automobiles to computers. Estimates of the size of its profit-making operations range from a few percent up to nearly half of the economy.

Some see the army as more efficient than the government, and ministers point out that it sub-contracts much of its work to private firms, but critics say it crowds out the private sector and hampers growth.

Asked what had really changed in Egypt, with the Brotherhood back underground after a brief taste of power and a former general back in the presidency, Investment Minister Ashraf Salman had a simple answer: “Egyptians”.

“The big change that’s coming this time is coming from Egyptians,” he said. “They will not accept anymore somebody to be like Mubarak to stay in power for 30 years. They will not accept anymore a minister like myself to stay on this seat for 20 years. They will never accept that.”

Source: Reuters