Egyptian President Abdel-Fatah El-Sisi

GIS Dossier: El-Sisi’s Egypt

  • Since taking power, President El-Sisi has stabilized Egypt
  • He deftly gained allies after being shunned by the West
  • He also took on extremism and implemented economic reforms
  • The positives have come at the price of democracy, which has been eroded

GIS Dossiers aim to give our subscribers a quick overview of key topics, regions or conflicts based on a selection of our experts’ reports since 2011. This survey explores Egypt’s economic development and geopolitical impact under President Abdel-Fatah El-Sisi.

In June 2013, for the second time in three years, street protests gripped Egypt. President Mohamed Morsi, a member of the controversial Muslim Brotherhood, was getting ready to celebrate his first year in office. He had been democratically elected following the ouster of Hosni Mubarak, but his tenure had been marred by instability, violence, human rights abuses and support for terrorist organizations.

The popular protests had become violent, creating such a disturbance that the military, led by the country’s defense minister, Field Marshal Abdel-Fatah El-Sisi, vowed it would step in to ensure law and order if the situation deteriorated any further.

The “total failure” of the Morsi government had created “an uncontrollable vacuum,” wrote GIS expert Bernard Siman at the time. Moreover, its foreign policy was “disastrous,” alienating former allies in the Gulf and discouraging investment, which had begun to dry up.

“The army apparently fears that the current Muslim Brotherhood government has no control over, nor solution for, this combustible mix,” wrote Mr. Siman. “There are clear and growing indications that … the Egyptian army will intervene to impose order regardless of any expected protestations from foreign governments and observers,” he concluded.

Egypt’s stability, and the success of the post-Muslim Brotherhood government, matter critically to the Gulf states

The day after that GIS report was published, Mr. El-Sisi initiated a coup that ousted the Morsi government. An interim government was installed, and Mr. El-Sisi was elected president in May 2014.

Search for allies

Immediately after taking office, President El-Sisi found himself shunned by the West, especially the United States and the administration of President Barack Obama. Washington was “pivoting” away from the Middle East and toward the Asia-Pacific region, and also considered Mr. El-Sisi a dictator who had overthrown a democratically elected leader. Cairo felt betrayed, since it was ready to do its part in Washington’s war on terror, while the previous government had refused to crack down on terrorist forces within its own borders.

This perception of U.S. “betrayal and disengagement” was held widely across the Middle East, just as Russia was increasing its involvement in the region, wrote an anonymous GIS expert in July 2014. Following the 2013 coup, Cairo and Moscow agreed on a $2 billion arms deal, financed by the Gulf states. Saudi Arabia, the United Arab Emirates and Kuwait also provided aid in the form of cash and oil. “Egypt will depend on, and therefore be part of, the Gulf geopolitical sphere … at least for the foreseeable future,” wrote the expert. “Its stability, and the success of the post-Muslim Brotherhood government, matter critically to the Gulf states.”

Trouble on the Nile

President El-Sisi’s foreign policy difficulties were compounded by Ethiopia’s decision to build Africa’s biggest hydroelectric dam on the Blue Nile – directly threatening Egypt’s main water supply. The construction of the Grand Ethiopian Renaissance Dam signaled the start of a new phase in which Egypt loses its leading role in the Nile Basin, wrote GIS expert Teresa Nogueira Pinto in April 2015. After some fiery rhetoric and unsuccessful attempts to block construction, Egypt adopted a more conciliatory tone, reflecting the new regional power dynamic.

The Grand Ethiopian Renaissance Dam
Egypt worries the Grand Ethiopian Renaissance Dam could threaten its water supply. For now, Cairo has decided to cooperate with Addis Ababa to keep the crucial resource flowing (source: dpa)

Playing nice with Ethiopia will probably not be enough to avert a crisis, though. Egypt’s agriculture sector accounts for up to 80 percent of the country’s water withdrawals, a state of affairs that could lead to a water shortage by 2025. “If Egypt does not manage to produce more food with less water, poverty rates and food insecurity are likely to increase, aggravated by accelerated demographic growth and high youth unemployment rates,” Ms. Pinto predicted. “A scenario of increasing poverty and food insecurity would be a major driver of radicalization.”

Military engagement

By the summer of 2015, Saudi-Iran tensions were running high, with the two countries fighting a proxy war in Yemen. Cairo had joined the Saudi-led coalition supporting the Yemeni government against the Iran-backed Houthi rebels with two goals in mind. First, it wanted to keep its ties strong with Riyadh, which had provided it with billions of dollars of aid. Second, it needed to ensure freedom of movement through the Suez Canal by denying the Houthis (and by extension Iran) control of the Bab el-Mandeb Strait. Egypt “pledged its active military and direct support” for the operation in Yemen, wrote Mr. Siman, who added that if push came to shove, “the weight of the Egyptian armed forces in supporting any hot and direct Iran-Gulf Cooperation Council military confrontation is likely to be decisive.”

In March of that year, members of the Arab League agreed to create an Arab Defense Force (ADF), of which the Saudi and Egyptian militaries would form the core. Based in Egypt, it was planned to number some 40,000 troops – larger than the NATO Response Force.

Officially, the force was aimed at meeting the dangers posed by Iran and Islamic State (also known as ISIS or Daesh). Yet as GIS expert Ambassador Zvi Mazel (a former Israeli ambassador to Egypt) pointed out, Cairo had other worries, especially the looming threat posed by the instability and growing terrorist presence in Libya.

Gaining stability

In October 2015, Ambassador Mazel wrote that President El-Sisi had begun to stabilize Egypt. Ordinary Egyptians appeared ready to trust him, “perhaps because they see the former field marshal as their best chance to materially improve their lives,” he said. There were benefits for Egypt’s neighbors as well. As GIS founder Prince Michael of Liechtenstein pointed out, the stability President El-Sisi had provided likely headed off a huge wave of migration to Europe.

President El-Sisi had effectively taken on jihadist forces, preventing terrorist attacks on crucial infrastructure

Notably, President El-Sisi had effectively taken on jihadist forces, preventing terrorist attacks on the Suez Canal or crucial tourist infrastructure. He had also addressed religious extremism: One of his first steps was to visit Al-Azhar, an influential university in Cairo, where he made a speech calling for radical Islamic rhetoric to be toned down.

His next step would be to focus the economy, which was in desperate need of reform: Twenty-five percent of Egypt’s 90 million population lived below the poverty line, and unemployment was potentially double the official 12.7 percent. The tourism industry was in a lull, and a lack of investment was hurting the oil and gas sector. Short-term fixes included reduced prices for fuel and staple foods, while the president’s long-term plans included big infrastructure projects, like an expansion of the Suez Canal.

To do all of this, the president needed a malleable parliament, and he had engineered one for the 2015 elections, despite his earlier promises to return the country to democracy. The Muslim Brotherhood (a huge political force in Egypt) had been driven underground. Severe restrictions were put in place: religious parties were prohibited from fielding candidates and electoral districts were carefully redrawn. The aim, wrote Ambassador Mazel, was to produce “a docile majority with no real power to challenge the president.”

The flipside of that coin for Egypt was peace and a growing economy. “The early results are encouraging,” wrote Ambassador Mazel.

Sinai: mounting trouble

One of President El-Sisi’s most difficult challenges is the insurgency in the Sinai Peninsula, which had been infiltrated by terrorist organizations before he came to power. In a May 2016 report, Ambassador Mazel took a deep dive into Sinai’s history and its significance to Egyptian security and politics. After President Morsi’s ouster, Sinai’s jihadi groups vowed to fight the El-Sisi regime and pledged their allegiance to Islamic State.

Estimates of the number of terrorists in Sinai range from 1,000 to 2,000 – though Egyptian authorities claim to have killed more than a thousand and jailed several hundred already. Daesh can easily recruit replacements among local Bedouins, as well as from Libya, where it has set up a logistics hub that supplies the Sinai branch with weapons. Despite official denials, the Gaza government also helps Daesh, probably by preparing explosives and offering sanctuary to fleeing and wounded terrorists.

Egypt coordinated with Israel as President El-Sisi sent troops into areas near the countries’ border to attack the terrorists. Yet, “despite the considerable means at its disposal, Egypt’s army has been unable to eradicate Daesh while suffering significant casualties.”

Egyptian soldiers were considered ill-equipped to cope with guerrilla warfare

Egyptian soldiers were considered ill-equipped to cope with guerrilla warfare. U.S. President Barack Obama withheld military aid for a time, however, until finally allowing the delivery of Apache helicopters and mine-resistant vehicles to Egypt. President El-Sisi would need more help from the West, however, to succeed in rooting out terrorism in Sinai altogether, wrote Ambassador Mazel.

Floating the pound

On the economic front, El-Sisi’s government made a “brave but correct decision” to freely float the Egyptian pound in November 2016, wrote GIS guest expert Lars Christensen. The central bank had previously tried to hold the currency’s value at about 9 pounds per U.S. dollar, and was hemorrhaging foreign reserves in the process.

The currency quickly lost nearly half its value, causing a sudden spike in the price of consumer goods. It was an unpopular move, and President El-Sisi himself admitted that the decision was “no picnic.”

“But let us consider the alternative,” wrote Mr. Christensen. “Continuing the previous policy of pegging the Egyptian pound at far too strong a level amounted to a continuous tightening of monetary policy.” By floating the pound, Egypt had “removed the monetary straitjacket.”

The U.S. dollar to Egyptian pound exchange rate, 2014-2019
The Egyptian pound lost nearly half its value when it was put into free float in 2016. Prices for consumer goods soared, but the move released the country from an economic straitjacket (source: macpixxel for GIS)

Moreover, the move secured Egypt a $12 billion loan from the International Monetary Fund. To obtain the loan, the government had already committed itself to other important reforms, including energy subsidy cuts and the introduction of a value-added tax. But to unleash Egypt’s economy, there was still work to do, argued Mr. Christensen: “Import tariffs should be lifted and the country opened up to trade and investment. State-owned companies could be privatized, and the legal framework significantly strengthened so the rule of law applies and private property is adequately protected.”

Such reforms would boost the supply side of the economy and lift potential growth, in turn supporting the pound, he said. For a stronger currency, the only sustainable recipe would be structural reform, not tighter monetary conditions. “Let us now hope that the authorities in Cairo are ready to follow through,” concluded Mr. Christensen. “The sooner the better.”

A new start with the U.S.

By 2017, with a new administration in the White House that was ready to forcefully reengage with the Middle East, Ambassador Mazel saw an opportunity for Egypt to draw closer to the U.S., potentially increasing its clout in the region.

In April, President El-Sisi made a visit to Washington, which “heralded a new era in Egyptian-American relations after years of hostility during the Obama administration.” President Donald Trump pledged assistance on the crucial issues of fighting Islamic terrorism and stabilizing the economy. Earlier in the year, the U.S. had resumed shipments of a full range of weapons to Egypt.

U.S. President Donald Trump and Egyptian President Abdel-Fatah El-Sisi shake hands
When President El-Sisi (C) first traveled to Washington in April of 2017, U.S. President Donald Trump (L) made sure to show his predecessor’s policy of shunning the former general had changed (source: dpa)

In the absence of U.S. support, however, Cairo had built strong ties with Moscow, buying arms and supporting its stance in the Syrian war. “The dilemma for Egypt’s president is how to restore and deepen relations with the U.S. without jettisoning vital Russian help,” wrote Ambassador Mazel.

Focus on the home front

In May 2018, as President El-Sisi began his second term, Ambassador Mazel found that Egyptians were proud and jittery. The president had chosen mostly to stay away from foreign entanglements, instead focusing on the economy. “With a population nearing 100 million and the largest Arab army in the Middle East, Egypt should be playing a central role in that troubled region.” However, President El-Sisi had chosen another strategy:

He believes economic development is the key to sustainable national greatness. While striving to achieve his goal, he made the strategic decision to focus on immediate and proximate security threats to his country and not let himself get involved in military conflicts beyond his borders. Reelected to another four-year term in March 2018 with 97 percent of the vote, he is not expected to deviate from this path.

For one thing, President El-Sisi had his hands full dealing with terrorism on his own soil. A counterterrorist operation launched in February 2018 to eliminate the local branch of the Islamic State in the Sinai Peninsula had weakened the terrorist group, but it still had the ability to “mount devastating attacks and take a heavy toll on civilian life in northern Sinai.”

Other measures taken to combat terrorism include the establishment of a 5-kilometer buffer zone at the border with the Gaza Strip, and cooperation with General Khalifa Haftar to stem the flow of contraband weapons from Libya.

“President El-Sisi has made remarkable progress on the issue that matters most: the economy,” said Ambassador Mazel, pointing out that the Egyptian economy was due to expand by more than 5 percent in the 2018-2019 fiscal year, its best performance in a decade.

If the conflagration is large enough, even a leader as astute as President El-Sisi may not be able to steer clear

Still, regional instability remained a huge concern, and some foreign policy issues needed to be addressed immediately, especially potential interference by Turkey in Suez-bound maritime traffic from its new strongholds in the Red Sea.

Moreover, the conflict in Sinai would continue to smolder, he predicted, and Hamas would remain a threat to the country. “Coping with these challenges will be difficult enough without the possibility of a major regional conflict,” wrote the ambassador. “If the conflagration is large enough, even a leader as astute as President El-Sisi may not be able to steer clear.”

Economic buildup

In March of 2019, Ambassador Mazel analyzed how President El-Sisi was quietly rebuilding Egypt’s economic strength, despite the international media’s focus on his dictatorial tendencies. The economy was recovering due to stability, which came at the price of democratic freedoms. “There is no political opposition to speak of, the count of political prisoners goes into thousands … and newly-imposed laws are curbing Egyptians’ freedom of speech and demonstration.”

Yet the system seems to suit Egypt, he said. Over the past two years, Egypt recorded gross domestic product (GDP) growth of 4-5 percent. Better results are projected for 2019. Unemployment is down from 12 to 10 percent. Still, for the economy to catch up with the population expansion, GDP growth of 7-8 percent is needed, wrote Ambassador Mazel.

Things were headed in the right direction, though. In fiscal year 2017-2018, Egypt’s Suez Canal revenue hit an all-time high of $5.6 billion, some $1.5 billion higher than the previous year. Though inflation rocketed, by the end of 2018 the local currency was doing slightly better against the U.S. dollar. “The improvement is expected to continue on the strength of foreign direct investment, government bond sales and remittances from Egyptians abroad,” wrote Ambassador Mazel. “On top of that, significant new natural gas fields have been discovered in the Mediterranean seabed.”

“In 2019 President El-Sisi will keep his focus on the economy and further the reforms while tightening his grip on the country,” predicted Ambassador Mazel.

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