Gulf aid helps pull Egyptian state back from the brink

Egypt’s geopolitical significance stems from a multitude of reasons, many of which are directly linked to the interests of other Arab nations, particularly in the Arabian Gulf region.

Protesters run from riot police during clashes at Tahrir square in Cairo on November 23, 2012. Egyptian President Mohammed Morsi's decree that put his decisions above legal challenge until a new parliament was elected caused fury amongst his opponents who accused him of being the new Hosni Mubarak and hijacking the revolution. Mohamed Abd El Ghany / Reuters
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CAIRO // In the three years since Hosni Mubarak was forced from power Egypt has repeatedly come close to meltdown.

There have been times when all key vestiges of state authority collapsed and the nation seemed ungovernable and deep in self-destruct mode.

Each time, Egypt pulled back from the abyss and muddled through, allowing the Arab world a sigh of relief.

The collapse of the state in Egypt could produce ripples so strong and far reaching that hardly any nation in the region would be spared its effects.

“Egypt has real institutions that have staved off a total collapse of governance,” said Michael W Hanna, an Egypt and Middle East expert from New York’s Century Foundation. “This isn’t Libya. But those very same institutions have contributed greatly to the progressive deterioration of the past three years. To the extent that governance is taking place at minimal levels and cannot hope to keep up with events when political leadership is nonexistent.”

Egypt’s geopolitical significance stems from a multitude of reasons, many of which are directly linked to the interests of other Arab nations, particularly in the Arabian Gulf region. That, in turn, has prompted them to act to prevent Egypt from collapsing.

The UAE, Saudi Arabia and Kuwait combined for a US$12 billion (Dh44bn) emergency package for Egypt soon after the Islamist president Mohammed Morsi was removed by the military in July. The funds kept the economy afloat, ensuring that key commodities such as fuel and wheat were available to Egypt’s 90 million people at a time of political turmoil and violence.

The package reflected the three nations’ deep dislike of the Muslim Brotherhood, the Islamist group from which Mr Morsi hails, and the deeply rooted interests they have in ensuring that Egypt remains stable.

Police vanish

The closest Egypt came to collapse was on January 28, 2011, a day of fierce and deadly clashes between police and protesters demanding the ouster of longtime ruler Hosni Mubarak. By nightfall, police vanished, under circumstances that are still unknown, as more than 20,000 inmates escaped from dozens of jails and police stations across the nation. Criminals broke into the world famous Egyptian museum in central Cairo and made away with antiquities. The streets belonged to protesters and criminal gangs and no one in Cairo, a city of 18 million, felt safe.

The final days of Mr Morsi’s rule in 2013 also signalled a partial collapse of the state. As hundreds of thousands rallied on the streets to demand his ouster, tens of thousands of soldiers backed by tanks and armoured personnel carriers deployed across the nation. Long lines formed outside petrol stations, power outages were unusually long and medicine disappeared from hospitals and pharmacies. Bands of criminals showed up in residential suburbs demanding protection money. The whole country was shrouded in a deep and dangerous state of uncertainty.

Those close brushes with meltdown were compounded by a slumping economy.

Egypt’s foreign reserves stood at nearly $35bn on the eve of the 2011 uprising, thanks mostly to consistent tourist traffic.

By mid-2013 the reserves plunged to $13.5bn, barely enough to cover three months of imports, as the central bank burned through more than $20bn to support the Egyptian pound between January 2011 and September 2012.

With tourists still staying away, the country’s foreign reserves remain low, at roughly $17bn as of last month.

The GDP growth rate last year was 2.1 per cent, compared to an average of 5-6 per cent during Mr Mubarak’s final years in office. The budget deficit has meanwhile grown, reaching 13.7 per cent of GDP in 2013 compared to just 7.5 per cent in 2011.

The pound has meanwhile depreciated by 16 per cent against the US dollar.

More than politics

The extent to which the Egyptian state has suffered since 2011 has been reflected by a failed states index compiled by the Washington-based Fund For Peace research group. Between 2011 and 2012 Egypt’s position worsened from from 45th to 31st in the rankings of 177 countries. Somalia is ranked first on the index, which is based on a series of social political and economic factors. However, Egypt did show slight improvement from 2012 to 2013, when it was listed at 34.

The interest of Gulf Arab nations such as the UAE and Saudi Arabia in keeping Egypt stable is not political alone. It is a stand that contrasts with Washington’s decision in October, for example, to freeze a big chunk of its military aid to Egypt, and the European Union’s reservations about the political situation in Egypt.

Saudi Arabia, for example, followed up on its generous aid to Egypt with declaring the Muslim Brotherhood a terrorist group, emulating a step taken by Egypt in December. The Saudi move bolstered the Egyptian position and led to calls by Cairo for more Arab nations to do the same.

Egypt expects more Gulf aid

Government officials say Saudi Arabia, the UAE and Kuwait are expected to offer Egypt a much larger aid package to help Field Marshal Abdel Fattah El Sisi, the military chief who removed Mr Morsi and is now expected to successfully contest the presidential elections. The financial boost would help him maintain his popularity while introducing painful but necessary economic reforms.

The officials would not say how much the package would be, but it is expected to be much more than the $12bn the three nations already have already given.

As a sign of what may be in store, Field Marshal El Sisi this month launched a $40bn housing project in Cairo with the UAE-based Arabtec construction firm to build one million units for middle-class Egyptians. The giant project will create tens of thousands of jobs and ease a chronic shortage of affordable homes.

The reason Arab nations are so keen to prevent Egypt from becoming a failed state is rooted in the historical role played by Cairo in the region and because of the symbolic significance of the country.

Egypt is the most populous Arab nation. Geographically, it is located at the centre of the Arab world, with porous coastlines on the Mediterranean and the Red Sea, two water masses shared by most Arab states. It is home to the Al Azhar mosque, the foremost seat of Sunni learning, and has the largest standing Arab army. Egypt is the region’s entertainment, cultural and literary centre.

Underlining its weight, four of its sons – the late president Anwar Sadat, novelist Naguib Mahfouz, chemist Ahmed Zewail and former head of the UN nuclear watchdog Mohammed ElBaradei – are Nobel prize winners.

Buffer against Tehran

A strategic alliance between Saudi Arabia and the UAE with Egypt is a welcome addition at a time when the two Gulf countries eye with mounting concern what they perceive to be a dangerous rapprochement between the West and Iran. Both nations, like Egypt now, see the Muslim Brotherhood as an extremist group with an agenda that transcends internationally recognised borders and to have links with extremist and militant groups.

Both Saudi Arabia and the UAE were unhappy with the rise of the Brotherhood in Egypt, with Mr Morsi winning presidential elections in 2012 and members of his Brotherhood winning nearly 50 per cent of all seats in parliament after voting in late 2011 and early 2012. Mr Morsi’s fall and the subsequent crackdown by Egyptian authorities on the Brotherhood have meant that the “mother ship” of political Islam has been dealt a blow it may never recover from, something that gave moderates in the Arab world something to cheer about.

But, going forward, Egypt cannot bank indefinitely on Gulf aid.

The UAE, Saudi Arabia and Kuwait are unlikely to indefinitely sink billions of dollars into Egypt’s coffers to keep the country’s economy afloat. Field Marshal El Sissi, who is assured of a landslide win if he runs, must introduce structural economic reforms that would allow the country to win the trust and confidence of the international community, so Egypt can borrow again.

It is a tall order for Field Marshall El Sissi, given that Egyptians rose twice since 2011 to remove presidents and given the scale of the economic problems facing Egypt. But many in Egypt believe the 59-year-old career infantry officer will take advantage of the popularity he is enjoying to push through much-delayed reform. Top of his list, the government officials say, is lifting or restructuring the subsidies on fuel, which account for nearly $20bn annually – by far the largest single spending in the budget.