When Abdülfettah es-Sisi came to power in 2014, he was lauded by many Egyptians as the solution to the political chaos that had been consuming the country since the Arab Spring. Unfortunately for Egypt, Sisi's costly economic policies have crippled the Egyptian pound, pushed inflation to new highs and Egypt now looks precariously close to a sovereign default. So in this article we're going to have a look at how Sisi came to power, Egypt's ensuing economic crisis and what might happen next.
So this story really starts with the Arab Spring. In January 2011, a month after anti-Gadhafi protesters kicked off in Tunisia, Egypt took to the streets to protest then President Hosni Mubarak, who had been in power for nearly 30 years. A month later Mubarak resigned and was replaced by the military junta called the Supreme Council of the Armed Forces. At the time the SCAF was led by a guy called Mohammed Hussein Tantawi but it also included a guy called Abdel Fattah el-Sisi as its youngest member who served as its head of intelligence. Anyway, the SCAF gave way to parliamentary elections in late 2011, which were won by the Muslim Brotherhood and presidential elections in the summer of 2012, which were narrowly won by the Muslim Brotherhood candidate Mohammed Morsi. For context the Muslim Brotherhood are a Sunni Islamist political group formed at the beginning of the 20th century that originally opposed British colonial control of Egypt. It started off as a pretty fringe group but rose to prominence after the 1967 Arab-Israeli war when it became the main political Islamist movement in the emerging ideological battle in the Middle East between political Islamism and secular Arab nationalism.
Anyway, Morsi only won the presidential election with a narrow 51% majority. So when he tried to pass what was perceived to be a radically Islamic leaning constitution it sparked massive protests and in July 2013, only a year after taking office, Morsi was deposed by a military coup. The coup was led by El-Sisi, who had been appointed Morsi's defense minister. Sisi appointed an interim president before running himself in the 2014 presidential election. The election was boycotted by the opposition and Sisi won with 97% of the vote. Now when Sisi first came to power, he was genuinely really popular. He only ran in the 2014 election when it became clear that there was popular demand for his candidacy and the main opposition group the Muslim Brotherhood had lost all credibility after their tumultuous year in power when they oversaw an endless saga of constitutional crises and a rapid drop in Egyptian standards of living. Sisi pitched himself as a moderate politician looking for consensus in a divided country. As a moderate Muslim he was somewhere in between the Muslim Brotherhood and the secularists and he promised that stability would bring economic growth. Originally he was pretty successful at this and Egypt's growth rate jumped from about 2% to about 5%.
Sisi was helped by tens of billions of dollars in aid from Gulf states like Saudi Arabia and the UAE, who have always been wary of political Islamism and its revolutionary tendencies. However in the decade or so since, Sisi has turned into a bit of an autocrat and his misguided policies have pushed Egypt into an economic crisis. When he first came to power Sisi immediately purged the army and jailed most of the senior members of the Muslim Brotherhood claiming it was the necessary price for Egypt's political stability and asking that Egyptians be patient. However, ten years later, Sisi is still as autocratic as ever. He's introduced various bills to give him more power over the media and jailed critical journalists, attacked Egypt's judicial system as ineffective and given himself the power to appoint top judges and rigged elections by jailing prominent opposition figures. Sisi argues that these policies are still necessary to maintain stability, pointing to the chaos that surrounds Egypt in places like Libya and Sudan. But the fact that little has changed in a decade doesn't bode well for anyone who wants to see Egypt turn into a democracy.
Sisi has also brought Egypt precariously close to an economic crisis. Egypt's economy is dominated by a bloated civil service and massive state owned companies like the Egyptian General Petroleum Corporation, which have in many cases been handed over to corrupt army loyalists. Sisi has spent tens of billions of dollars on enormous infrastructure projects. Some of these made sense. Egypt's infrastructure was a bit of a mess when Sisi took over and he massively improved stuff like the road and rail systems. However Sisi has also invested in some financially questionable mega-projects including a second Suez Canal in 2015, a massive irrigation project around Lake Nasser called Tosca and a series of new cities across Egypt. These include a new summer capital on the north coast, a sustainable city in the Nile Delta and the new administrative capital, which sits just 45km east of Cairo and is intended to be Egypt's new capital city when it's eventually finished.
Unfortunately for Sisi the first phase alone has cost over 45 billion USD and the project has become so expensive that its main international backers, the UAE and China, have now both pulled out to afford all these projects and maintain its generous subsidy regime egypt has had to borrow in print more money. This has put pressure on Egypt's currency, the Egyptian pound, and stoked inflation. The Egyptian pound lost more than half its value in his first few years and inflation has rarely been below 10% pushing down Egyptian living standards while exacerbating poverty. Things got significantly worse after Russia's invasion of Ukraine which made international investors more risk averse. Since then the pound has slipped to roughly 30 to the dollar and inflation is now running at just over 37%. The Egyptian central bank has used up a lot of its foreign currency, defending the currency and Egypt now looks worryingly close to a sovereign default. Egypt's debt to GDP is nearly 100% and the state spends something like a third of all of its revenue just paying off the high interest rates on its pre-existing debts which is clearly not sustainable.
Worryingly for Sisi, recent analysis by Bloomberg suggests that Egypt is now the second most likely country in the world to default after Ukraine. Things don't look likely to get better any time soon. Sisi has shown little inclination to change course and resisted the wholesale reforms demanded by the IMF for further support in a desperate grab for foreign currency the government has started selling up state assets, but the central bank is still spending reserves faster than it can accumulate them on defending the pound. The only point of respite are raising oil and gas prices, which should bolster the state's coffers. Ultimately, if this economic crisis continues, it will be interesting to see whether Sisi can convince Egyptians this is a price worth paying for political stability and it's worth keeping an eye on the upcoming presidential election early next year.