Future US-Egyptian Cooperation

Unlike the apparent tendency last year to believe that the US was turning towards Asia out of fatigue from Middle East intricacies and President Barack Obama’s desperate desire to carve his legacy, it seems that the US is here to stay. It is obvious that the US interest in the region, and hence in Egypt, continues to stand firm. The motives for such interest may have differed from before as we observe a clear switch towards terrorism, but by no means are such motives less important or the US is less attached. The continued relevance and attractiveness of Egypt to the US administration and US businesses remain intact and may eventually reach out to Congress as well. 

Many would like to perceive that a weakening of Egypt’s regional position and leadership role in the last few years have caused a regression in Egypt’s importance to the US. Adding to this is the fluid situation pertaining nowadays to Egypt and the region as a whole, which do not bode well for future prospects in relations between the two countries. Such a view is, however, counterbalanced by the continued vital role of Egypt in the region, between Libya, which is turning extremist Islamist and nurturing terrorism and the Gaza Strip, another highly troubled area. This should make Egypt’s fight against terrorism and its search for a new trajectory highly relevant to the US.

It is noteworthy that Egyptian-American bilateral relations have never been smooth and direct. There has always been a third party involved. This was the Soviet Union in the 1950s and 60s, and Israel after the 1973 war. Some went as far to suggest that Egypt-US relations are a consequence of, and secondary to, the US-Israel relationship. This is not hard to grasp in the light of Camp David Accords. Of essence, however, is that Egypt’s two uprisings have clearly brought to the fore the Gulf Cooperation Council (GCC) as the new “third party”, which is today highly influencing the relationship between Egypt and the US. Whether at the time of the Muslim Brotherhood, where Qatar was playing a highly damaging role, or nowadays with the go-between of the Saudis to mend the relationship. Are we ready for a direct relationship? Can the two countries sustain a genuine partnership based on mutual respect and trust? The geostrategic importance of Egypt has always attracted the attention of the leading powers, whether the Ottoman Empire, Great Britain, the US or the USSR and today’s Russia. They have always acted to secure their interests, not letting a rival power have the upper hand or Egypt become too able to pursue its interests independently. Has Egypt matured after two uprisings to give true credit to its geostrategic importance? 

To attain a solid relationship with the US, it is vital for both countries to understand that foreign policy today is no longer conducted solely by the highest authority in the country. Foreign policy is a blend of domestic policies. It is therefore absolutely necessary that Egyptians as well as Americans understand better the domestic dynamics behind the foreign policy in each country.

With high expectations of the US becoming self-sufficient in oil, and with a totally secured Israel in the region, US foreign policy priorities have shifted. Yet Egypt’s role remains relevant to continue to guarantee stability in the region, which is of paramount importance to the US and the GCC countries. Washington’s overriding interests in the Middle East depend on a stable Egypt. However, it seems that the US is not capable of doing much today to help Egypt stabilise and move out of its transitional phase, which continues to drain its resources.

How to reach stability is seen differently from one country to the other, and priorities diverge vastly. Egypt’s priorities for its stability are clearly to overcome security and economic challenges, which are becoming untenable, and where the US can be of great support and help by merely mobilising greater international support and tolerance towards Egypt. Though gradually convinced of the risky and precarious situation in Egypt — thanks to the new “third party” in the relationship — the US seems reluctant to back Egypt’s recent developments. Democracy, human rights and inclusiveness continue to be pushed to the fore with hardly any consideration given to the war on hideous terror Egypt is conducting these days.

The US should not hasten to prejudge the next government. Egyptians see clearly a window of opportunity opening up. By restoring democratic rule, with presidential elections and parliamentary after two months, Egypt’s next government may have a mandate to make politically difficult decisions with regard to economic reforms. 

In spite of the aid injection from GCC countries (which was valued at over $20 billion last year), intended to give Egypt a breathing space, it is clear that Egypt is in need of coming to terms with the IMF to fix its economy and restore its creditworthiness. Here the US Administration can help Egypt reach a good deal. However, Egypt itself, on the basis of the “ownership” principle, should design a credible home grown programme and begin its implementation and then call on the IMF and the international community to support it. Again, the US can encourage the IMF to agree on Egypt’s programme. We have seen, however, that successive transitional governments were hesitant to negotiate a deal with the IMF or even to pave the way for a subsequent agreement, because of the precarious domestic situation. Transitional governments were more keen to address “social justice”, if undefined, with each government coming forward with its own, largely unsustainable, packages. 

What the government is initiating today with raising fuel and electricity prices is a step in the right direction. Similar to the political roadmap, Egypt is in need of an economic roadmap, not ad hoc actions. The vision and roadmap will need to include clear and transparent public and corporate governance. Egypt’s private sector will need to mature beyond cronyism and heavy reliance on state connections. The roadmap will need also to factor in credible and economically rational equity considerations that foster the development of a strong educated middle class.

In spite of all this, Egypt remains an attractive destination for US businesses. US investment flows to Egypt have increased by over 15 per cent from 2012 to 2013, in contrast to the decline of the EU investment share by 20 per cent. At the regional level, it is important to look at the COMESA market and how US businesses can benefit through Egypt to enter a market with a total population of nearly 400 million with an increasing purchasing power duty free. Heinz, an American firm, currently exports ketchup from Egypt duty free to COMESA and to Europe. From the US, Heinz would have to pay import duties on ketchup, which could be up to 15 per cent. Hence, Heinz was able to expand its market access regionally, thereby increasing its revenues and global market share. 

US businesses have specific interests and are already investing considerably in sectors such as engineering, where US investment is targeting the auto industry, electronics, household appliances, and where Egypt is hosting Ideal Standard factories and exporting to the EU duty free. Otherwise, the US would have to pay a 6.5 per cent duty.

Pharmaceuticals is another area of a win-win activity between Egypt and US businesses. The US is today by far the largest foreign investor in this sector, and investment in pharmaceuticals is already exceeding investment in textiles and clothing. Equally remunerative is agro-industry, which I believe could be an attractive industry to benefit from the QIZ (Qualified Industrial Zone) advantages on par with textiles and clothing. The food industry can also find attractive markets in COMESA and GAFTA regions. 

Another area of high interest to Egypt, and which is also profitable to US businesses, is logistics and trade facilitation. In line with World Trade Organisation agreements on trade facilitation, Egypt is determined to fulfill its commitments to enhance its trading environment and help its businesses integrate in the global value chain and access new export opportunities. US companies can enter into joint ventures and cooperate with Egyptian companies to increase storage capacity and port facilities. This will increase Egypt’s efficiency in the import and distribution of raw commodities, which will be essential to pursuing value-added production and export.

A major area of a mega investment in Egypt is the Suez Canal, which will open new prospects outside the Nile Valley and the Delta. Known as the “Integrated Development at the Centre of the Suez Canal”, it contains major projects amounting to around LE200 billion of total investment, which should be profitable to US businesses as well. 

In conclusion, if both countries care to extract the maximum benefit in their relations from one another, it is necessary to revisit the framework — if there is any such framework — that governs Egypt-US financial and economic relations. Unlike the EU, which places a high priority on establishing such a framework, which evolves in line with the changing situation and growing needs. Such a comprehensive framework is missing in Egypt-US relations and should be considered pertinent in developing our relations in the future with an enlarged “participatory approach” including civil society and the private sector in the dialogue to promote and institutionalise our relations.

It is important to say that although the present may not be so bright, as the situation remains very fluid in Egypt and in the region, hopes and expectations for the future are high, based on the continued interest and relevance of both countries to one another. Egypt has started and needs to continue to factor the heavy weight that other emerging countries are gaining on the international stage, without undercutting the relationship with the US.

Source : Ahram