Egypt’s Democratic Transition: Five Important Myths

The Atlantic Council and Legatum jointly produced a report which delineates five myths about Egypt’s current political transformation and post-revolution future.

The authors of the report argue that “[f]ailure in Egypt could lead other countries in the region to turn away from the very idea of democratic reform.” They insist that the country’s newly elected parliament and president must guarantee that new jobs constantly become available for the nation’s growing youth population, corruption levels in government are kept at an absolute minimum, and that the new regime creates better mechanisms of “control, transparency, and accountability, in order to ensure that economic opportunity does not depend mainly on political connections.”

Myth #1: Egypt’s economy is a basket case – Egypt’s youth unemployment hovers around 20%, and other unemployment rates remain in the neighborhood of 10%. Real GDP has consistently grown in recent years, and was reported at 5.3% in 2010. The economy is often seen as reliant on tourism, but in reality, Egypt’s most important sectors are manufacturing, mining, and agriculture. The interim government will still be under enormous pressure, but the authors of the report suggest that the economic situation isn’t nearly “as dire as it is often portrayed.”

Myth #2: It is time to concentrate on politics; economic reforms have to wait - the authors argue that Egypt’s economy is fully capable of regaining momentum, but it is long-term sustainability that needs to be focused on. They state that 61% of Egypt’s workforce is not formally employed, and that “poor Egyptians can be rapidly empowered if they are given legal titles to their property and [are] encouraged to join the legal economy.”

Myth #3: Key fiscal problems, such as subsidies, cannot be tackled anytime soon - the report suggests that “without greater control of [the] deficit, Egypt remains vulnerable to domestic or external shocks. Most of Egypt’s public debt is financed domestically, constituting 15-20% of the total debt. Therefore, small and medium-sized businesses and enterprises would have a more difficult time obtaining loan-able funds because of a lack of availability. Additionally, the government must work to continue cutting subsidies in the fuel and food markets via revised budget plans. “Replacing regressive subsidies with a system of supports explicitly targeted at the poor can correct this distortion and may also prove politically appealing,” the report reads.

Myth #4: The Egyptian government needs budget support urgently – In late June, the interim government rejected some significant budgetary support on the grounds that assistance was no longer necessary. Discomforted by large loan offers from the IMF and World Bank, SCAF cabinet members revised the budget and decreased overall spending by 7.4%. Some Middle Eastern countries such as Saudi Arabia have offered pledges totaling nearly $18b; other countries have offered debt swaps and OPIC loans in addition to annual aid packages.

Myth #5: The international community has done all it can do to help the transition – “Far-reaching reforms that stimulate private sector growth and spread economic opportunity will like at the center of a successful democratic transition in Egypt,” the report says. The authors suggest that the U.S. should partake in a free trade agreement with Egypt to signal a “deep and durable commitment…to the success of the Egyptian transition.” Additionally, other countries should also arrange future trade agreements to “increase the access of Egyptian agriculture and labor-intensive manufactures to American and European markets…”