Egypt

Politics:

• Analysis

  Egypt politics: Going the wrong way

  Egypt's referendum: Going the wrong way

  Muhammad Morsi must accommodate the secular opposition; if necessary, the West should push him

  IT LOOKS pretty certain that the constitution which Muhammad Morsi, Egypt's president, has presented to the people will win their endorsement in a referendum that is being held in two stages (see "Egypt's constitutional referendum: A dubious yes"). On December 15th a majority of voters in the ten provinces polled said yes, though 57% of Cairo's 6m voters said no. On December 22nd the remaining voters, who are likely to be more conservative, will probably grant their approval, too. Mr Morsi and his Muslim Brotherhood party may conclude they have a mandate to guide Egypt in an Islamist direction, away from more open, permissive ways.

  They would be wrong to do so. This line of thinking threatens to plunge Egypt into a protracted period of impoverishing instability, which in the end will hurt Islamists as much as everyone else. The more pragmatic Islamists, perhaps including Mr Morsi, should change course while they still have time.

  Even if the constitution gets popular approval, it will not have a ringing endorsement. Less than one-third of eligible voters are reckoned to have turned out in the first round of the referendum, and the margin of assent has been slim. Coptic Christians, who make up about a tenth of Egypt's 85m people, are unnerved by the document's Islamist flavour, as are many Egyptians with secular, liberal or left-wing views. And despite the referendum results, the Brothers may be losing favour. Since winning a clear plurality in a general election nearly a year ago, their popularity has been dipping.

  Hardline Brothers may be tempted to respond by gripping onto power even more tightly. But the organisation that suffered so many decades of persecution under President Hosni Mubarak should surely realise where that may lead. Instead, Mr Morsi and his allies would do better to respect alternative opinions and stop treating political opponents as mortal enemies conspiring with godless Westerners to do them down.

  Time to leave the streets

  As a conciliatory gesture, Mr Morsi could use his powers of appointment to ensure that parliament's upper house, the Shura Council, becomes more representative. Elected with only 10% of the vote, when it was widely assumed to be a mere talking shop that would be abolished by the new constitution, 83% of its members are Islamists, a far higher proportion than they would win in a fair election today. Given that the Shura Council will now be the sole legislature until fresh elections to the lower house take place in two months' time, it would be wise to bring in more secular sorts and Christians. The Shura Council should also amend the new constitution's most blatantly sectarian and anti-democratic clauses--such as the ones allowing the religious establishment to meddle in legislation and giving the army exorbitant political and budgetary perks.

  The opposition, for its part, should start relying more on negotiation and less on demonstration. Street protests were a force for good before democracy prevailed--they toppled Mr Mubarak, after all--but if they become a routine way to change the law and remove governments, then Egypt will never learn how to reconcile interests and settle disputes through everyday politics. The non-Islamist opposition, which is coming together for the first time in a broad front, should concentrate on preparing for the imminent general election. To compete with Islamists at a local level, they must start tackling the urgent bread-and-butter concerns of poor people.

  The West has rightly stayed out of Egyptian politics. But, once written, a constitution is hard to change back, so outsiders should now voice their anxieties about the direction Mr Morsi is taking. Germany's government was right recently to postpone a dollop of aid until Mr Morsi shows a greater willingness to pass the test of real democracy. The Americans, who hand over $1.6 billion a year, should do the same.

  At the start of the Arab spring, optimists hoped that liberal democracy would sweep the region and pessimists predicted that Islamists would grasp power and keep hold of it. Recent events have taken Egypt a step in the pessimists' direction. But the old system failed, in the end, because oppressive governments that ignore their people's views risk getting violently overthrown. It is not too late for Mr Morsi to show he has learned that lesson.

  December 22, 2012

• Background

  Egypt: Key figures

  Mohammed Morsi

  An engineer by background, Mr Morsi served as an independent member of parliament in 200o-05. A relative unknown, he was appointed head of the Muslim Brotherhood's Freedom and Justice Party (FJP) in 2011. He became the Brotherhood's leading presidential candidate after its first choice, Khairat al-Shater, was disqualified in April 2012. After a close run-off against Ahmed Shafiq, the last prime minister to serve under Hosni Mubarak, Mr Morsi was elected president in June. He has demonstrated surprising leadership, forcing the Supreme Council of the Armed Forces to withdraw from politics and has sought to appeal to all Egyptians. Despite having resigned from the FJP and the Muslim Brotherhood, secularists are suspicious of his ongoing ties to the group.

  Mahmoud Mekky

  Mr Mekky was appointed vice-president in August 2012, becoming the first civilian to hold the position since 1952. He began his career in the police and went on to study law, working his way up eventually to become the vice-president of the Court of Cassation. Mr Mekky was active in campaigning for an independent judiciary and against vote-rigging during presidential elections under the former regime. Mr Mekky's brother, Ahmed, has been appointed justice minister in the Qandil cabinet.

  Mohamed ElBaradei

  A lawyer and former diplomat, Mr ElBaradei came to prominence as the director-general of the International Atomic Energy Agency from 1997 until 2009, for which he was awarded the Nobel Peace Prize in 2005. His return to Egypt in 2010 invigorated the opposition movement. Mr ElBaradei's decision to withdraw from the presidential race in January 2012, citing the lack of a system to guarantee free and fair elections, won him respect among many Egyptians. In April 2012 he set up the Constitution Party and is seeking to form a broad coalition to contest the next parliamentary election.

  Hamdeen Sabahi

  A former member of parliament, Mr Sabahi is the leader of Karama, a Nasserist party. He was a founder of the opposition Kefaya movement in 2004 and was arrested several times by the Mubarak regime. Mr Sabahi came third in the first round of the presidential election in May 2012, but performed exceptionally well in Giza, Cairo and Alexandria, securing the most votes in the latter two governorates. He has founded a new a liberal alliance, the Popular Current movement, which he says could later become a party.

  Abdel Fattah al-Sisi

  Mr Sisi was appointed commander of the armed forces and defence minister in August 2012, replacing the chairman of the Supreme Council of the Armed Forces (SCAF), Mohammed Hussein Tantawi. One of its youngest members, he served on the SCAF as head of military intelligence. There is speculation that Mr Morsi's power grab was made possible by an internal coup by younger military generals. Mr Sisi will play an important role in defining the military's role in the future.

  September 13, 2012

• Structure

  Egypt: Political structure

  Official name

  Arab Republic of Egypt

  Legal system

  Based on the constitution of 1971 and a series of constitutional declarations by the Supreme Council of the Armed Forces (which relinquished power in August) and the president, Mohammed Morsi. A new constitution will be put to a referendum on December 15th

  National legislature

  Formally bicameral: the Majlis al-Shaab (People's Assembly, or lower house) has 498 directly elected members. Members of parliament serve a five-year term. The Shura Council (the upper house) was established in 1980 and has 290 members

  National elections

  Parliamentary elections were held between November 2011 and February 2012. The People's Assembly was dissolved in June 2012, however. New elections will be held, but a date has yet to be announced

  Head of state

  President, directly elected. Mohammed Morsi was elected in June 2012

  National government

  Council of ministers headed by the prime minister. Hisham Qandil, the former irrigation and water resources minister, has been appointed to the role

  Main political parties

  Freedom and Justice Party; Nour; Free Egyptians Party; Progressive Unionist Party (Tagammu); Social Democratic Party; Wafd; Wasat; Revolution Continues coalition

  Prime minister: Hisham Qandil

  Key ministers

  Agriculture: Salah Abdel Momen

  Communication & information technology: Hany Mahmoud

  Civil aviation: Samir Metwaly

  Defence: Abdel Fattah el-Sisi

  Education: Ibrahim Deif

  Electricity: Mahmoud Rida Balba

  Environment: Mustafa Kamel

  Finance: Mumtaz al-Said

  Foreign affairs: Mohammed Kamel Amr

  Health: Mohammed Hamed

  Higher education: Mostafa Mesaid

  Housing: Tareq Wafiq

  Investment: Osama Saleh

  Information: Metwaly Abdel Maqsoud

  Interior: Ahmed Gamaleddin

  Irrigation & water resources: Mohammed Bahaeddin

  Justice: Ahmed Mekky

  Local development: Ahmed Zaki Abdeen

  Manpower & emigration: Khaled al-Azhari

  Petroleum & mineral wealth: Osama Kamal

  Planning & International co-operation: Ashraf el-Araby

  Supply & internal trade: Abu Zaid Mohammed Abu Zaid

  Social affairs & insurance: Nagwa Khalil

  Tourism: Mohammed Hisham Zaazou

  Trade & industry: Hatem Saleh

  Transport: Mohammed Rashed

  Utilities, drinking water & sanitation: Abdel-Qawi Khalifa

  Central Bank governor

  Farouk al-Okdah

  December 07, 2012

• Outlook

  Egypt: Key developments

  Outlook for 2013-17

  • A controversial decision by the president, Mohammed Morsi, to expand his powers and weaken the judiciary has exacerbated political uncertainty, which will persist at least in the short term.
  • We expect that, despite significant opposition, a new constitution will be passed in a referendum in mid-December owing to the Muslim Brotherhood's ability to mobilise its large grass-roots support base.
  • A new parliamentary election will be held after the constitution is passed. The Muslim Brotherhood is again expected to perform well, although non-Islamist parties may make some gains provided they do not boycott the poll.
  • Economic policy will combine a focus on social justice and economic growth. The government aims to boost revenue through tax reforms and to rein in current expenditure by cutting energy subsidies.
  • Real GDP growth remained weak at 2.6% in the first quarter of 2012/13 (July-September) owing to ongoing political uncertainty. Growth is forecast to average 5.9% in 2013-17, reflecting increased activity across all sectors.
  • We expect the current-account deficit to narrow from 3.2% of GDP in 2012 to 3.1% of GDP in 2013, as exports pick up and the services surplus widens. This trend will result in the current account moving into surplus in 2016.

  Review

  • On November 22nd Mr Morsi issued a constitutional declaration, making his decisions immune from judicial checks and protecting the constituent assembly and the upper house of parliament from dissolution.
  • Mr Morsi's decision sparked large demonstrations and clashes between his supporters and opponents, with several attacks on the offices of the Muslim Brotherhood's Freedom and Justice Party across the country.
  • On November 29th the constituent assembly rushed through a vote on the draft constitution amid significant opposition, with the aim of putting it to a referendum within two weeks.
  • In mid-November the government announced a ten-year economic development plan, which envisages the creation of 800,000 jobs by the end of the 2012/13 fiscal year.
  • The IMF announced a staff-level agreement for a US$4.8bn stand-by credit facility on November 20th. Following Mr Morsi's declaration it stated that final approval depended on the implementation of agreed upon measures.
  • Subsidies on 95-octane petrol were removed on November 25th, increasing the price from E£2.75 (US$0.45) to E£5.85.

  December 07, 2012

Economy:

• Background

  Egypt: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	82.5	Population growth	1.8
  GDP (US$ bn; market exchange rate)	231.0	Real GDP growth	5.1
  GDP (US$ bn; purchasing power parity)	518.9b	Real domestic demand growth	5.8
  GDP per head (US$; market exchange rate)	2,798	Inflation	12.1
  GDP per head (US$; purchasing power parity)	6,287b	Current-account balance (% of GDP)	-1.6
  Exchange rate (av) E£:US$	5.9	FDI inflows (% of GDP)	4.2
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Background: In 1952 an army coup brought an end to the monarchy in Egypt. Gamal Abdel Nasser (1954-70) introduced radical, nationalist policies. Under his successor, Anwar Sadat (1970-81), Egypt's political stance shifted towards the West and its economic policies became more liberal. Mr Sadat's signing in 1979 of a peace treaty with Israel led to Egypt being temporarily isolated within the Arab world. A popular uprising backed by the military forced the resignation of Mr Sadat's successor, Hosni Mubarak, in February 2011. The Muslim Brotherhood, which had been officially banned since 1954, won parliamentary and presidential elections in 2012.

  Political structure: Egypt is a republic undergoing a political transition to what is likely to be a more democratic system. The Supreme Council of the Armed Forces ruled by constitutional decree from February 2011 until the new president, Mohammed Morsi, reclaimed executive power in August 2012. Parliamentary elections, which took place in November 2011-March 2012, returned an Islamist-dominated legislature. This was subsequently dissolved by a Constitutional Court ruling in June 2012. New elections for some or all of the seats in the People's Assembly (the lower house of parliament) are scheduled to take place after a new constitution has been passed in a referendum.

  Policy issues: Egypt's macroeconomic situation began to deteriorate in the late 1990s. A more economically liberal cabinet, appointed in July 2004, pursued an economic reform programme with far-reaching plans for change. Post-Mubarak governments have demonstrated some populist tendencies, but are unlikely to deviate significantly from previous economic policy. Some liberal reforms will continue alongside a greater emphasis on social equality.

  Taxation: A new 25% bracket for individual personal income and corporation tax was introduced in 2011. The previous regime abolished had tax exemptions, but most existing commitments will be honoured. The implementation of a new property tax, which had been scheduled for January 2011, has been put on hold.

  Foreign trade: Egypt has a large structural trade deficit, which stood at an estimated US$33.3bn in 2012, up from US$28.2bn in 2011. Merchandise exports slowed to US$26.1bn from US$27.9bn in 2011 and the import bill rose to US$59.3bn from US$56.1bn the previous year. The current account recorded an estimated deficit of US$8.2bn in 2012.

  Major exports 2011	% of total	Major imports 2011	% of total
  Crude petroleum & petroleum products (incl charcoal)	49.7	Semi-finished goods	28.8
  Finished goods (incl textiles)	37.9	Consumer goods	22.5
  Semi-finished products	7.5	Capital goods	18.6
  Iron & steel	1.5	Crude petroleum & petroleum products (incl coal)	11.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Italy	8.8	China	11.5
  Germany	5.5	US	9.8
  US	5.5	Italy	5.6
  India	5.2	Germany	4.9

  Download the numbers in Excel

  Download text file (csv format)

  December 07, 2012

• Structure

  Egypt: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 07, 2012

• Outlook

  Egypt: Country outlook

  Egypt: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Political uncertainty has deepened following a series of decisions by the president, Mohammed Morsi, which may be interpreted as authoritarian and have raised concern among Egypt's liberals and secularists over the possible entrenchment of the Muslim Brotherhood. On December 22nd Mr Morsi issued a constitutional declaration, extending his already substantial powers and in effect placing himself above the judiciary. The declaration makes Mr Morsi's decisions immune to judicial review until a new constitution is ratified and a new lower house of parliament is elected. It also protects the constituent assembly tasked with writing the new constitution and the Shura Council (upper house of parliament) from any judicial decisions.

  ELECTION WATCH: The constituent assembly rushed through a vote on a new constitution on November 29th-30th. Following receipt of the document, Mr Morsi announced that it would be put to a referendum on December 15th. If that results in a simple majority in favour of the constitution, a parliamentary election is to be held within 60 days. The position of the constituent assembly itself remains uncertain. The Supreme Constitutional Court had been due to rule on the constitutionality of the assembly and the Shura Council on December 2nd but announced it was suspending all activity after Mr Morsi's supporters surrounded the building. It is unclear when or if it will resume work on the cases again.

  INTERNATIONAL RELATIONS: Mr Morsi will seek to reclaim Egypt's position as a key player in regional diplomacy. The clearest demonstration of this came as he revived Egypt's role as mediator between the main Palestinian groups in Gaza (led by Hamas) and Israel, brokering a ceasefire between the two sides following a confrontation in mid-November. His intervention won him the gratitude of both the US and Israel.

  POLICY TRENDS: The government has issued a ten-year development plan, which focuses on both social justice and economic growth. Among its most ambitious aims is the creation of 800,000 jobs by the end of fiscal year 2012/13 (July-June) through a EP40bn (US$6.6bn) increase in total investment to EP267bn, with the government contributing EP100bn of this and foreign investment doubling to US$4bn. In the short term the government plans to reduce the current-account deficit and raise foreign-exchange reserves. The plan foresees real GDP growth of 7.5% by 2016/17 and 9.8% by 2021/22. The Economist Intelligence Unit expects that the government will struggle to meet the targets it has set itself, particularly in the short term, as political instability continues to weigh on the economy. The programme forms the basis for an agreement for a US$4.8bn stand-by credit facility from the IMF and the government. Possibly to assure the Fund of its commitment ahead of the conclusion of a deal, the government has already lifted subsidies on 95-octane petrol in line with the plan.

  ECONOMIC GROWTH: We have revised our forecast for growth in 2012/13 downwards to reflect the latest actual figures, to 2.9%. Assuming a more settled domestic political picture and a steady rise in capital inflows, growth will strengthen to an average of 6.6% a year in 2013/14-2016/17. Growth will be somewhat constrained by weak global demand, particularly in the euro zone, which will affect Egyptian exports and Suez Canal revenue.

  INFLATION: Inflation has averaged 7.6% in the ten months to October. The inflation rate picked up for the first time since April in October owing mainly to a sharp rise in butane gas cylinder prices. We estimate that inflation will have averaged 7.4% for the full year. As the world's largest importer of wheat, Egypt faces upside risks to inflation owing to damage to this year's US crop. However, the government has said that a bumper domestic harvest will ensure its stock of the grain lasts into early 2013. We expect inflation to accelerate in 2013 as the pound depreciates more rapidly and global non-oil commodity prices rise. It will decline in 2014-15 as the currency and global commodity prices stabilise, before picking up again in 2016-17 on the back of rising commodity prices and higher domestic demand.

  EXCHANGE RATES: The Central Bank of Egypt has managed a gradual depreciation of the Egyptian pound since the revolution, selling foreign reserves to counter a lack of capital inflows. This contributed to a decline in net international reserves from US$36bn in December 2010 to US$15.1bn in March 2012. Reserves now appear to have stabilised around US$15bn (equivalent to around three months' import cover). We forecast that the pound will weaken from an estimated average of E£6.06:US$1 in 2012 to E£6.82:US$1 in 2013 but will strengthen in 2014-17 as the political situation stabilises and macroeconomic fundamentals improve.

  EXTERNAL SECTOR: We expect the current-account deficit to narrow as a percentage of GDP in 2013, as export revenue picks up and the services balance strengthens. The transfers surplus will narrow, reflecting lower remittances from Egyptians living abroad as the domestic political and economic situation stabilises. The current-account balance will turn positive in 2016 on the back of a steady rise in export earnings and a widening of the services surplus, as greater political stability results in a recovery in the tourism sector. We expect export earnings to grow to US$38.8bn in 2017 and import costs to US$77.7bn. The income balance will also benefit from the improving political situation as the government's cost of borrowing declines. The current account will record an annual average deficit of 1.5% of GDP in 2013-15 and a surplus of 0.1% of GDP in 2016-17.

  December 07, 2012

• Forecast

  Egypt: Country forecast summary

  Country forecast overview: Highlights

  • Political uncertainty will persist in the early part of the forecast period as the division of powers between the executive, the legislature and the judiciary remains unclear. The passing of a new constitution and the election of a new parliament could contribute to greater stability from mid-2013, but an escalation of unrest around these events is likely and the opposition will continue to question the legitimacy of both the constitution and the new parliament.
  • We expect that, despite significant opposition, the Muslim Brotherhood will succeed in mobilising sufficient support to pass the new draft constitution in a referendum in mid-December. An election will then follow within 60 days. The Brotherhood's Freedom and Justice Party is likely to perform well, although it may do so against the backdrop of a widespread boycott.
  • The government has articulated a ten-year economic programme, which is focused on enhancing social justice in tandem with boosting economic growth. The programme forms the basis for an agreement for a US$4.8bn stand-by credit facility from the IMF.
  • Economic growth has remained weak, although it picked up to 2.6% in the first quarter of 2012/13 (July-September). We expect growth to accelerate from 2012/13, averaging 5.9% over the forecast period, as increased political stability leads to a recovery in exports, increased investment and a rise in tourism activity.
  • We expect the budget deficit to narrow in 2012/13, as revenue picks up on the back of faster economic growth and the government makes some progress on controlling current expenditure by cutting some fuel subsidies. We expect the deficit to narrow gradually to 6.2% of GDP in 2016/17.
  • The Central Bank, its foreign reserves diminished, will minimise its intervention in the foreign-exchange market and allow a more rapid depreciation of the currency against the US dollar in 2013. We expect the currency to strengthen over the remainder of the forecast period, as the political situation stabilises and macroeconomic fundamentals improve.
  • The expected disbursement of a US$4.8bn stand-by credit facility from the IMF in early 2013 will encourage other lenders and improve investor confidence, boosting inward capital flows.
  • The current-account deficit will narrow in 2013, as exports rise and the services surplus widens. We forecast that the deficit will average 1.5% of GDP in 2013-15 and that the current account will move into surplus in 2016.

  

  December 07, 2012

View detailed map

Country Briefing

Land area

997,739 sq km, of which only 5% is inhabited and cultivated territory

Population

83m (end-2009 estimate)

Main towns

Population (July 2007 official estimates)

Greater Cairo (capital; Cairo, Giza, Helwan, 6th of October & Kalyoubia governorates): 18,440,076

Alexandria: 4,123,869

Port Said: 570,603

Suez: 512,135

Climate

Hot and dry, with mild winter

Weather in Cairo (altitude 116 metres)

Hottest month, July, 21-36°C (average daily maximum and minimum); coldest month, January, 8-18°C; driest months, July, August, 0 mm average rainfall; wettest month, December, 5 mm average rainfall

Language

Arabic

Measures

Metric system. Local measures are also used, especially for land area: feddan=0.42 ha or 1.04 acres; cereal crops: ardeb=198 litres or 5.6 US bushels; 8 ardebs=1 dariba; cotton: Egyptian bale=720 lb (325.5 kg), qantar (metric)=50 kg (replacing the traditional qantar equivalent to 44.93 kg)

Currency

Egyptian pound (E£) = 100 piastres

Time

Two hours ahead of GMT

Public holidays

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate: National Police Day (January 25th); birthday of the Prophet Mohammed (February 4th 2012); Sinai Liberation Day (April 25th); Labour Day (May 1st); National Day (July 23rd); Eid al-Fitr (August 19th 2012); Armed Forces Day (October 6th); Eid al-Adha—Feast of the Sacrifice (October 26th 2012); Islamic New Year (November 15th 2012)

March 15, 2012