President Sisi and German Economic Affairs Minister Brigitte Zypries at
the opening of the German-Egyptian Economic Forum in Berlin on June 12,
2017
The generals are proving adept at evading Sisi’s lacklustre efforts, as exemplified by the case
of Al-Watanyia, a chain of petrol stations owned by the military.
Al-Watanyia was subject to interest by Gulf investors. However, in order
to discourage the sale, the chain appears to have been subjected to a
process of asset stripping, with most of its assets and prime locations
being moved to another petrol station chain, Chillout, which is also
military-owned. This in turn will make Al-Watanyia less interesting to
Gulf investors.
Such resistance from the military elite is bound to continue with the
generals obstructing attempts at reform, regardless of any claims the
regime has made to rein in the military. Indeed Sisi's latest statements
suggest quite the opposite. For example, on the 26th of December, Sisi stated
that his policy of mega-infrastructure projects will persist, even as
it continues to place pressure on the pound and consume Egypt's hard
currency reserves. It is important to remember that the regime policy of
debt-fuelled mega-projects is a critical component for the
militarization of the economy. There is no reason to believe that this
trend will change in the future, in spite of the anxiety of
international investors and lenders.
The ability of the military elites to resist is based on two main
pillars. First, their complete domination of the political system with
an unprecedented accumulation of power. Even if Sisi wished to reduce
the influence of the military, there is no ruling or opposition party
that he can use to balance out the political clout of the generals.
Indeed, all competing centres of civilian power have been completely
hollowed out, empowering the military and making the regime Sisi has
built extremely resistant to reform. Second, the ability of the regime
to blackmail its allies with fear of mass social upheaval, which might
lead to regional repercussions across the Gulf and the Southern
Mediterranean. This can range from claims of domino effects in the Gulf,
to a migrant crisis in Europe or the rise of radical groups as a
result of a decade of draconian repression.
It may be still too early to tell but it seems that the responses of
Sisi’s allies has been to strive to avoid being further drawn into
pouring money into the black hole that is the Sisi economic model while
at the same time providing enough support to prevent a wholesale
collapse which would be disastrous for their huge portfolios of
investment. For example, on the 11th of January the value of the pound dropped to a historic low of 32 EGP against the US$, from 27.6 EGP per US$ at the beginning of the day. Further devaluation was only stopped through an injection
of US$ 250 million carried out by Gulf institutional investors in
Egyptian short term debt instruments. The devaluation, plus the offering
of high interest rates, encouraged the sale of US$ 2.94 billion of Treasury bills, with a rate of return above 20%, which was considered
by Bloomberg to be a “record yield compared to its peers”. The sale
signalled a return of “ hot money”, i.e. short term investment in
sovereign debt, which was one of the original triggers of the crisis. In
addition, the Gulf has pledged US$ 6.7 billion worth of investment over the next three fiscal years, as well as rolling over its deposits, totalling US$ 28 billion
in the Egyptian Central Bank till the end of the IMF programme in
order to shore up the regime currency reserves. US$13 billion of the
Gulf deposits came in 2022 alone.
Hence, the upcoming period is bound to be extremely turbulent for the
regime and for the millions of Egyptians struggling with economic
hardship. The cost of the crisis will be devastating for the estimated 30%
of Egyptians below the poverty line, whose ranks are expected to swell
by millions. This could very well be a turning point for Sisi. However,
the direction matters will take remains to be seen. What is clear is
that the time of lavish support has now passed; Sisi’s allies are
finding themselves locked into an awkward and costly embrace with a
regime that is increasingly becoming a liability.