October 23, 2018

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  • Two candidates, one dire economy

    The tourism sector has stalled over the past year and a half. (Photo by Dalia Rabie)

    BY AMR RAMADAN

    Cairo: Egypt’s presidential candidates are polarizing on many levels, but they do have one thing in common: both face a dire economic situation that needs quick fixing as well as a long-term vision to solve countless longstanding socioeconomic ailments.

    In the June 16-17 runoff, voters face the unenviable choice between ousted president Hosni Mubarak’s last prime minister, Ahmed Shafik, and the candidate of the Muslim Brotherhood’s Freedom and Justice Party (FJP), Mohamed Morsi.

    Over the past year and a half, economic issues have taken a back seat to political instability, lacking security and ideological power struggles that have escalated to debilitating proportions.

    Meanwhile, an economic slowdown continues with the financial sector under increasing pressure, the tourism sector still stalling, unemployment on the rise and scarce foreign reserves threatening energy supplies. Not to mention foreign investors staying at bay and playing wait-and-see.

    The hope for a swift economic revolution has more or less faded, and the elected president will be left picking up the pieces. Each candidate brings to the table an economic program they see fit to fix the economy and spur investment, which Egypt heavily relies on to create jobs and battle chronic unemployment.

    But with polarizing politics come divergent economic views.

    On the one hand, Shafik is a former military man seen as a stalwart of the old regime by his opposition and the herald of stability and security by his supporters. He promises an effective police force and security apparatus, improved law enforcement and a heavy-handed state to achieve macroeconomic stability and economic development.

    His opponent Morsi, currently head of the FJP, is viewed with mistrust by some: the front-man of a party that has failed to make an impact in parliament — where it enjoys a majority — and failed to deliver on the demands of the revolution.

    Morsi’s supporters, however, hail him as a well-educated, revolutionary leader that can adopt moderate political Islam to the complexities of political rule. He preaches moderate Islam and a morally-guided government that would work together with civil society and the private sector to stamp out corruption and the remnants of the old regime.

    All in the details

    A perusal of the candidates’ presidential platforms reveals some similarities, with the main differences reflected in the details.

    Morsi’s economic vision, the same as the Muslim Brotherhood’s, is more comprehensive and detailed, which may be due to the fact that nearly half of his 80-page platform concerns the economy. Meanwhile, Shafik’s economic plan comprises 16 points, while the rest of his platform prioritizes security and law enforcement.

    Shafik lists the economic goals he intends to achieve as president, but Morsi adds to this by giving detailed explanations and benchmarks using clear indicators of progress. For example, Morsi measures the success of fighting corruption by its effect on economic indicators, job creation and public trust in government. He also details a number of short- and long-term goals and steps for reforming monetary, fiscal, trade and industry-related policies.

    Both intend to reduce the budget deficit by the end of the four-year term to an acceptable average of around 6 percent of GDP. Morsi promises more. He claims that under the Nahda (Renaissance) Project, Egypt can achieve an average annual growth rate of 7 percent in the next 10 years and double the rate of GDP per capita.

    While Shafik’s platform lacks long-term vision, Morsi’s has an ambitious economic plan with benchmarks for the year 2023.

    Both plan to initiate national mega-projects as well as industrial and technological zones across Egypt, particularly in neglected areas like the rural south and Delta. Shafik provides the location, name and the purpose of the proposed projects; while Morsi delves further into funding and implementation strategies, making his ideas seem better thought out.

    But the long-term outlook detailed in the Nahda Project may not be completely to Morsi’s advantage. Coupled with the FJP’s power dominance — parliament, the constituent assembly and now perhaps even the presidency — it’s an indication of how long they plan to be in power: a long time. This plays into the fears of a skeptical public, wary of recreating a single-party stronghold on politics as memories and remnants of Mubarak’s National Democratic Party still plague the nation.

    In this light, Shafik’s clear-cut, short-term goals of returning political and economic stability may be more appealing.

    Similarities between the candidates’ platforms are striking and, not surprisingly, both claim to prioritize fighting corruption, empowering the private sector, promoting stronger trade and investment ties with African and Arab countries, targeting fuel and bread subsidies to better support the poor, and endorsing  various unemployment and social safety nets.

    Although Morsi does call for a more flexible taxation system that achieves social justice, both avoid a detailed discussion in terms of percentages, tax brackets, increases and decreases. Both aim to lower taxes for small and medium enterprises.

    One of the main differences in their dealing with economic issues is the role of civil society, citizens and the media in terms of responsibility and monitoring. Both say they want to empower civil society, but Morsi adopts a more participatory approach in terms of the contribution of civil society, media and citizens to economic development.

    On the flip side, Shafik defines a clear role for the armed forces in the economy, describing it as “a strategic necessity since they pay taxes.”

    Egypt’s informal sector, a significant and neglected part of the economy which the International Labor Organization estimates to be half of the non-agricultural workforce in Egypt, is not mentioned by Shafik. Morsi, however, outlines a detailed plan to integrate the informal sector into the economy.

    Experts weigh in

    Plans and outlooks are all well and good, but experts agree that the economic situation will depend more on what the candidates can actually achieve, rather than their ambitions.

    In terms of attracting foreign investments, which can provide a much needed boost to the economy and is a priority for both candidates, Western reluctance to invest in a sphere dominated by the Islamist FJP has been overstated. Jennifer Bremer, chair of the Public Policy Department at the American University in Cairo, said investors will pay more attention to what the president does than who he is.

    “If the president acts to uphold agreements previously reached, to resolve disputes quickly, and to create a welcoming environment for new investors, they will not care if he is an Islamist or not,” she said.

    Omneya Helmy, lead economist at the Egyptian Center for Economic Studies, said, “Both domestic and foreign investors are attracted to a country that respects the rule of law and protects investors’ rights. Macroeconomic stability and minimized corruption …the candidate who succeeds in guaranteeing these prerequisites will attract investments.”

    But Karim Helal, former CEO of investment firm CI Capital, sounds a warning bell, stressing that the current political leadership has so far failed to achieve the parameters that make Egypt an attractive investment destination for both locals and foreigners.

    According to Helal, “The country needs to demonstrate political stability based on a clear, unambiguous economic identity which previous transition governments and practically all political parties and candidates have so far miserably failed to address.”

    A point of contention may be the candidate’s ability to garner foreign support in the form of grants, loans and potentially, bailouts.

    The World Bank and International Monetary Fund for example, said Bremer, want to see a government that is acting responsibly and tackling the severe problems facing Egypt. Bremer gives Morsi the edge in this regard, not because of his policies, but because he has a support base that he can call on to retain legitimacy as the need arises to make some difficult choices.

    Helmy, on the other hand, says that since international financial organizations have already expressed interest in lending Egypt, it comes down to choices Egyptians have to make, depending on whether alternative funding from regional development banks or other countries is available as well as the conditionality attached to the different types of loans.

    Bremer does concede that regarding foreign support, “none of them [foreign funders] wants to see Egypt in deep trouble, so they will likely provide some support to either one.”

    Bremer and Helmy agree that it will be difficult to reduce the budget deficit, a major indicator of the government’s effectiveness and ability to achieve social welfare, but any president can achieve this if the necessary reforms are made.

    “Both [candidates] plan to restructure government expenditures (fuel subsidy reform, civil service wages, for example) in addition to tax reform to enhance public revenues,” Helmy said. “If they are able to achieve this, the budget deficit can be reduced.”

    Bremer added that it is useful to have a target, but it will be very difficult to get to 6 percent given the current global economic climate. If the president can sell policies that will be costly to the A and upper B class in order to do what is needed for the lower 3/4 of the population, then there is some hope of holding the deficit steady, at least. She warns, however, that a populist approach would be financially ruinous, no matter who put it in place.

    Security and stability

    In the end, it may all come down to which candidate can guarantee security and stability. Shafik clearly highlights the importance of the rule of law and security in his program and in his public discourse. But will either be able to achieve this? And will it take precedence over economic reform?

    Helmy says that this is a question of short-term vs. long-term vision. She recognizes that under the current circumstances, security and law enforcement are key.

    “Certainly the current security vacuum, which to many signifies the absence of the state, has to be a priority to enable us to start tackling the many urgent and time-sensitive problems. Security clearly strikes a sensitive cord with many Egyptians,” said Helal.

    But just as Morsi’s comprehensive long-term economic vision under Islamist political dominance may not be entirely appealing to the general public, Shafik’s over-reliance on rhetoric glorifying heavy-handed security is equally off-putting to a nation that fought against exactly this.

    On a related note, when asked about his outlook for the banking and finance sector which Helal has been a part of for 30 years, he said the elected president will only be positive to the economy, and in turn to the banking and finance sectors, if there are no “violent irrational reactions” to the election results, as in the first round.

    But from the perspective of revolutionaries, this may be a very possible outcome of a Shafik victory.

    Wael Khalil, an activist and blogger, said that he would not comment on the economic effectiveness or pros and cons of each candidate, because “one of them should not be running for office in the first place, he should be in jail.”

    Khalil said he does not support the Muslim Brotherhood, citing the similarities to Shafik’s capitalist, free-market vision, but added that with Morsi, there may be hope for gradual change through political confrontation.

    Shafik’s message is to stifle the revolution and his victory would have a devastating effect on the morale of the Egyptian people, he added. “Shafik’s win will not mean the return to stability by any means. We [protesters] are prepared for a lengthy confrontation with the old regime which in this case will surely be back.”

    For Bremer, Shafik’s tough talking is more worrisome than Morsi’s morality-based rhetoric.

    “Cracking down on dissent is really not the answer and will only lead to more generalized unrest. This is the last thing the economy needs.” –The Egypt Monocle

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