Rhein on Energy and Climate

From March 13th to 15th 2015 Egypt held a jumbo meeting in Sharm-el-Sheikh, gathering 2000 investors, bankers, officials, ministers, royalties and heads of government from some 100 countries to celebrate a “new” Egypt.

The purpose of this well-planned event was to show the international business community that after three decades Mubarak and four years unrest Egypt wants to transform into a “new country” with excellent business and growth prospects.

The guests had the chance to listen to Ibrahim Mahiab, the new Egyptian prime minister, promising “Egypt is the future with undiscovered potential and will be one of the leading countries in the world”, while John Kerry told US business people that “with strong private investment Egypt had the potential of securing annual growth in excess of 10 per cent”.

The enlarged Suez canal with its extensive logistic and industrial hub requiring huge investment financed largely by Gulf states, the building of “Cairo Capital” which is to host the central government and a population of some five million and the renovation of its electricity supply, based on off-shore gas in the Mediterranean and wind and solar power, constitute the main hopes for the business community.

Projects” are once again in the focus, from big thermal power plants, construction and infrastructure projects, six tunnels under the enlarged Suez canal, thousands of km of new roads, an electric train connection between the old and new Cairo. To that end, the government has secured an impressive amount of funding, more than $12 billion from the Gulf countries, $ 16 billions from British Petroleum and British gas for the development of the gas industry.

The Sharm-el-Sheikh conference has no doubt been one of the most successful business events organised in Egypt in recent years.

The Gulf countries are looking to Cairo for political stability in the region. They do not care about the lack of democracy or human rights and prefer a general like Sisi to a civilian, duly elected leader. An independent judiciary is no issue for them either; as they also lack it. They seem so scared about the terror of the Islamic State (IS) that any government that stands for tranquillity at home and and the political will to take on IS units, as Egypt has done a few weeks ago in Libya, is welcome to them. This is even true for European governments as the invitation to President Sisi by the German Vice-Chancellor for a visit to Germany shows.

As to the economic assessment of the Conference, prudence seems appropriate. Those familiar with Egypt are unfortunately well aware of the slowness with which the country advances. Its heavy bureaucracy constitutes the biggest handicap for business, together with low educational standards.

Rapid population growth does not facilitate the management of the country.

With 85 million Egypt is the biggest country in Europe and the Middle East. Due to a fertility rate of 2.8! its population is expected to reach almost 140 million by 2050!

Its economic growth of around two per cent has hardly outpaced demographic growth of 1.8 per cent in the last few years. The country must therefore invest heavily in education, health and basic infrastructure to maintain a rather poor status quo. The standard of living has therefore been stagnating in recent years, one of the reasons behind the social frustration and unrest in the country.

The macro-economic picture is anything but brilliant. With a budget deficit of 12 per cent and a public debt of 86 per cent of GDP in 2014 Egypt would be far from qualifying for the Euro-Zone! Official unemployment was 13 per cent in 2014; the inflation rate exceeded 10 per cent in the last few years.

The government therefore had little choice but to impose austerity and to phase out the unhealthy subsidies on gasoline, diesel and electricity.

Egypt keeps spending too much for consumption and too little in productive investments, 79 per cent and 16 per cent of GDP respectively, figures that are hardly adequate for an “emerging” country to which one should add the tiny 0.4 per cent of GDP devoted to research and development and an illiteracy rate of one quarter of adult population. It will the be tough for Egypt to turn into a dynamic tiger country in the near and medium term future.

The Sharm-el-Sheikh conference was no doubt a useful event to turn the eyes on Egypt. The country needs more of such conferences. But in between it must do its homework, both politically and economically.

It has big problems to resolve, from water shortage, to education, congestion, bureaucracy, the rule of law. And last not least democracy.

For Europe a vibrant Egypt is of great importance. It should therefore assist Egypt in the overdue reforms it needs to undertake.

Eberhard Rhein, Brussels, 17/3/2015

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