Soon after Mohamed Morsi’s ouster as president of Egypt, petrodollars from the Gulf countries came thick and fast.
The troika of Saudi Arabia, UAE, and Kuwait pledged a total of $12 billion to Egypt in the form of loans, grants, and fuel supplies, and promised to lend a helping hand to avert the country’s looming financial crisis.
It is no secret that these countries have little love for the Muslim Brotherhood, which they perceive as a threat to their internal stability. While some believe the troika is pushing for a return to the days of Hosni Mubarak, Mark Lynch argues this speculation is farfetched. After all, “Mubarakism failed for a reason…[and] anti-Islamism will have a short-half life as a legitimating formula for the new leadership.”
Skeptics seem to have forgotten the revolution’s slogan of “bread, dignity and social justice.” It may be elusive but Egyptians certainly have not lost sight of it. To fervently highlight the political machinations of these new Gulf benefactors as disastrous for Egypt’s future is hardly different than David Brooks’ doubting the “mental equipment” of millions of Egyptians in choosing and ousting their representatives.
In fact, the Gulf’s largesse in the region is not new. In 2011, after Mubarak’s ouster, the same hopeful advocates of supposed neo-Mubarakism, promised monetary assistance to Egypt exceeding current levels. In the end, UAE, Qatar and Saudi Arabia provided a marginal portion of what they initially promised, mainly focusing on deposits and less on investment. Analysts speculate that political and economic uncertainties and an “unfriendly” new Egyptian government were behind these delays.
At this point, it is unclear who in Egypt will handle incoming Gulf money. Technically, the funds are under the authority of the Central Bank of Egypt (CBE), which may choose to convert the money into bonds as it did with Qatar’s previous loans and grants to the country during the Morsi presidency.
Should the CBE opt for conversion, it will be obliged to use the loans to address Egypt’s budget deficit as mandated by the Euro Medium-Term Note (EMTN) program terms. The EMTN program was established by the Egyptian government in May 2013.
Alternatively, the CBE could save the funds to alleviate Egypt’s foreign reserve shortages.
Either scenario is, however, highly unlikely to produce a sudden economic volte-face given Egypt’s heavy food subsidies programs and exploding public sector. Unless Egypt takes charge of its economy, it will likely have to move forward with a pending IMF loan of $4.8 billion, which it has so far avoided. As with all loans from the IMF, the agreement will require Egypt to adopt certain neoliberal policies, known as structural adjustment programs, which will be devastating to the Egyptian population
Herein lies an opportunity for Gulf states to go beyond loans and make meaningful investments in Egypt. In the past, loans to the country were intended to address financial crises, and did little to improve the plight of average Egyptians. By making in infrastructure, education, and small and medium sized-enterprises, Gulf countries can help make a more meaningful contribution that has a real positive impact on people’s daily lives.
To achieve this goal, funds must be injected into labor-intensive agricultural and manufacturing projects and telecommunication ventures that provide a source of income to the unemployed youth and boost Egypt’s overall economic performance.
In a part of the world characterized by state control over key economic sectors and industries, Gulf sovereign wealth funds (SWFs) that target larger enterprises may have relative success operating in regional countries. So far, however, Gulf countries have been less active investors in the country.
In 2011, investments from Gulf Cooperation Council (GCC) countries made up merely ten per cent of Egypt’s foreign direct investment (FDI). In Egypt, forty-five percent of FDI in medium-sized projects comes not from wealthy neighbors, but from Britain.
While the Gulf troika has significant political interests in Egypt right now, the aid these countries have pledged is, nevertheless, commendable. However, unless it is complemented by alternative long-term investment ventures, the purchasing power of these loans and grants will be of limited value and duration.
Gulf governments and their investors must be willing to take a leap of faith beyond direct deposits and grants, which are likely to be squandered or mismanaged by whoever presides over Egypt during these chaotic times.