[Salon] Sisi and the evisceration of the middle class -ArabDigest.org Guest Post

Sisi and the evisceration of the middle class Summary: Egypt’s president ploughs ahead with huge debt-funded mega projects that saddle the middle classes and poor Egyptians with ever heavier tax burdens as inflation soars and the Egyptian pound plummets. We thank Maged Mandour for today’s newsletter. Maged is a political analyst and a regular contributor to Arab Digest and to Middle East Eye and Open Democracy. He is also a writer for Sada, the Carnegie Endowment online journal. Maged is the author of the recently published Egypt under El-Sisi (I.B.Tauris) which examines social and political developments since the coup of 2013. Keep an eye out for it! You can find Maged’s most recent AD podcast here. Almost a decade after the election of President Sisi, and the entrenchment of a militarised form of state capitalism, signs of economic decline and impoverishment are everywhere. Poverty rates, which stood at 26.3% in FY 2012/2013, the year of the coup, have increased to reach an estimated whopping 35.7%. Those categorised as “not poor” have decreased by 8%, from 45.23% in 2019/2020 to 36.99% in 2022/2023 as the decline of the middle class accelerates. These figures should not come as a surprise , considering the historic collapse of the national currency against the dollar, which is hovering around 47.1 EGP per US$ after the latest devaluation on 6 March. In May 2014, when Sisi won the election, the exchange rate stood at around 7 EGP per US$, an immense loss of value. This impoverishment was driven by record inflation, which reached an historic high of 39.7% in August 2023 with food and drink inflation reaching 71.9%. This record is expected to be broken in the second quarter of 2024 with inflation anticipated to reach 45% after the latest devaluation of the pound. The destitution of millions of Egyptians is a direct result of the regime’s model of militarised state capitalism, which has driven the country to an unprecedented debt crisis. More profoundly, however, it is a direct result of the regime’s grand political project, namely, the concentration of political and economic power in the hands of the military establishment and with it the transfer of wealth from the lower and middle classes to the military elites. Military generals have become multi-millionaires thanks to corruption in Sisi's mega projects [photo credit: Steve Hanke] With the ascension of Sisi to the presidency, on a wave of mass popular support, the full militarisation of the state and the political system was set loose. For example, the Mubarak era policy of populating the state apparatus with retired or active military personnel accelerated with the state bureaucracy, economic authorities, ministries and local government all heavily populated by retired or active members of the Egyptian Armed Forces. This was coupled with legal and constitutional amendments that heavily curtailed the power of the judiciary, severely weakening the ability of the State Council and the Constitutional court to challenge the executive. Finally, a new parliamentary majority party was engineered by the security services; it does not seem to play an active role in policy making nor does it populate any important government posts. It rather acts to rubber stamp the government's policy and to provide an aura of legitimacy for the regime. This heavily militarised political landscape has allowed the military and the Presidency to embark on a mass appropriation of public funds, through an historic debt spree, whose burden has fallen on the shoulders of the poor and the middle classes. The list of examples are too numerous to survey, but the most prominent example is the New Administrative Capital, with a total estimated budget of US$300 billion. In spite of official government pronouncements that the capital is not being funded by the state budget, implying that it is not a burden on public finances, there is mounting evidence that it is, indeed, funded by loans and public money drawn from the budget of economic authorities. The reason that it does not appear on the state budget is the fragmented nature of the Egyptian budgetary landscape which allows the regime to obfuscate and obscure its spending. This is only possible within the confines of a fully militarised political system, and with a parliament that is too docile to challenge the supremacy of the executive. It is important to note that the project is executed by the Administrative Capital For Urban Development (ACUD); 51% of the company is owned by the military. Even with the recent mass capital inflows, namely the US$35 billion Ras El Hekma UAE investment, the increased value of the IMF loan to US$8 billion, the return of hot money, and the EU funding package estimated at US$8.1 billion, a trend that further impoverishes the vast majority of Egyptians is set to continue though it is expected to alleviate the worst symptoms of the debt crisis. Still, the regime’s policy of mega projects with dubious economic returns seems to be very resistant to change. For example, in January 2024, ACUD announced plans to start the second phase of the New Administrative Capital with an estimated cost of 250-300 billion EGP, doubling its size. There are also talk of another mega project for the Suez Canal with an expected cost hovering around the US$10 billion mark. That's in spite of the amount being transferred to the state budget from the revenues of the Canal dropping from US$4.5 billion in 2014/15 to US$3.8 billion in 2021/22, raising questions about the efficacy of a project like this. And since Yemen's Huthis began their attacks on Red Sea shipping, revenues have declined ever more precipitously. Capital inflows for Sisi's mega projects will only benefit the military elites and the regime’s creditors, now enjoying record high interest rates. The interest rates are so lucrative that an estimated US$16 billion of capital investments in short term debt instruments have flowed into the country since early March. It is important to remember that an outflow of US$20 billion worth of investments in the same type of debt instruments triggered the crisis in 2022, illustrating how little the regime has learned over the past two years. In the end, the debt spree which has cost Egyptians US$132.7 billion in external debt servicing over the past decade has not only impoverished them but has allowed the military to entrench itself in the economy. The core of Egypt's problem does not solely lie in economic policy but with the political system, an outright military autocracy, that produced this policy and an international consensus that has encouraged it. With the role of the EU and the US in enabling one of the most brutal dictatorships in the Middle East, the inevitable anti-Western popular backlash will be immense and generational. The European obsession with migrants will pale in comparison with the hostile regime that might emerge in the Southern Mediterranean if and when the Sisi regime changes.