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The economics of Egypt’s coup

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As Egypt inches towards the first anniversary of the July 3 coup, the economy continues to flounder. The military-backed reverting to Mubarak-era policies has been buttressed only by lavish handouts from the Gulf Security Council (GCC) states and vague promises of future investment by western business, namely Coca Cola.

Despite loud media support for the military government, ongoing gas shortages and power outages, plus Egyptian Prime Minister Hazem el-Beblawi’s minimum wage law, which excluded the neediest 75% of the labor force, sparked a wave of wildcat strikes that forced his government to resign on February 24.

This was the scenario as Egyptian officials came cap in hand to the Arab Summit held in Kuwait in late March. There was little cause for cheer at the meet, with the GCC crowd fighting among themselves, Syria's membership suspended, and the rest of the members seen as economic basket cases.

In any case, the Arab League is increasingly irrelevant, dominated now by the Saudis and Gulf states, which are caught in a web of contradictions, both condemning the Muslim Brotherhoods throughout the region as terrorists, and at the same time supporting the al-Qaeda-type terrorists intent on toppling the Syrian dictator.

The GCC oil sheikhs ‘paid’ $15bn in aid for the July 2013 coup in Egypt, but the handouts were quickly used up on buttressing the Egyptian pound and on a dismal $4.9bn stimulus package. The Egyptian pound has continued its slide, economic growth has stalled (at best its 1% in the first quarter of 2014), the budget deficit stands at14% of GDP, unemployment is 13.4%, inflation is 10%, while public debt and foreign debt are accelerating. GCC aid is not just monetary, and includes fuel and natural gas, which Egypt was cavalierly exporting until last year.

A Bank of America report in February described a presidential bid by Field Marshal Abdel Fattah el-Sisi as “market-friendly in the near term”, but warned that Sisi’s holdover of officials and discredited policies from the Mubarak era did not bode well in the long term, suggesting it was “a watered down version of the pre-revolution regime”. Addressing the nation on TV, in early March Sisi lamented, “Our economic conditions are so, so difficult.” He pointed to fuel and other subsidies which cost the government $15bn a year, account for 30% of the government budget and 9% of GDP, but gave no clear prescription.

A major problem for foreign investors is angst about the legality of much of the privatization carried out under Mubarak. After the 2011 uprising, the corruption involved began to be exposed, a raft of legal challenges were launched, and judges started overturning deals under popular pressure.  A draft investment law now aims to prevent third parties from challenging contracts made between the government and an investor.

Investors want to have their cake and eat it: no more corrupt Mubarakite officials, and at the same time no more challenges to corrupt investment deals (which often strip a state company of its assets and lay off workers, spiriting any profits abroad).

The Muslim Brotherhood (MB) government tried to square the circle. It allowed the illegal privatisations to be challenged, turned back the massive corruption, and encouraged a new class of small and more devout businessmen to build a new Egypt, emulating the Turkish miracle which unfolded under the Islamists there. Egypt is ripe for such a development, but the paranoia of the secular elite and their unwillingness to make room for a less corrupt, more dynamic, more home-grown, non-Cairene strata of entrepreneurs means that the only way forward for Egypt has been crushed “in the near term”.

Of course, it will be ordinary Egyptians who face the music—losing subsidies and jobs, watching their modest new minimum wage be eaten up in inflation, as a neo-Mubarak investor-friendly climate is fashioned.

In the past, the Gulf states have been protected by the British and more recently the Americans. Now, it seems, they think their billions of dollars will buy them ‘security’ from Egypt. This is the subtext of interim Egyptian President Adly Mansour’s vow to the Kuwaiti press on the eve of the Arab Summit: GCC security is now a national responsibility for Egypt as they are “partners in identity”. He explained that Arab nations are suffering from “blind terrorism”, and announced that Egypt will urge Arab countries to forge a new agreement on combating terrorism.

The Egyptian military saw the MB as too sympathetic to the Palestinian cause, in particular, Hamas in Gaza, and feared the MB was distancing itself from the Egypt-Israel peace treaty. One might well argue that the MB was addressing the same root problem of “blind terrorism” (though they would argue it is US-Israeli terrorism), and that their sympathy with Gazans was because they are Egyptians’ real “partners in identity”. (Indeed, Gaza was governed by Egypt until 1967.)

The MB were beginning to catch on to the international finance boondoggle—the money saved in any IMF “structural adjustment” slashing subsidies will of course go to the foreign bankers—until they were toppled. Instead of a ‘slash and burn’ ending of subsidies, they were trying to make them work without corruption. They re-re-negotiated with the IMF, finally proposing that some of the debt be cancelled as “odious debt”, a precedent that earned them no allies in Washington, despite the fact that the US used this principle to cancel Iraq’s foreign debt in 2003.

The MB were also beginning to move the Israeli mountain by refusing polite negotiations, working directly with Hamas (and mediating Hamas-Fatah talks) and developing an ambitious plan to transform the Sinai, including building civilian infrastructure, creating industry, and strengthening its internal and military security, in defiance of the US-Israeli assumption that it was a no-man’s buffer zone. There were tantalizing hints that a new Middle East economic constellation was being forged which would have included Iran. Before he was arrested, President Mohamed Morsi made hundreds of dismissals in the military ranks, and hundreds more in the bureaucracy, actions which started to chip away at the corrupt ruling elite’s stranglehold on Egypt’s economy.

Israeli leaders breathed a collective sigh of relief when Sisi took power, and are busy developing newly found offshore Palestinian natural gas reserves, planning to not only end imports from Egypt (which were priced below market value and cost Egypt $1bn), but to export Palestinian gas to Egypt to meet ongoing gas shortages. Egypt will pay an estimated four times more for these imports than it earned on its gas exports to Israel between 2005–2011.

This embarrassing turn of events will hardly add to Sisi’s popularity. The military is once again scrambling to look relevant, clearly unable to deal with a rapidly changing landscape and formulate a plan to save Egypt from its ongoing travails. Neither the IMF, US-Israel, even the GCCers have reason to be optimistic in either the “near term” or long term.

a shorter version of this appeared at middleeasteye.net


Egypt is forming an economic dependence on funds from Saudi Arabia and the UAE that spells economic disaster for the vast majority of ordinary Egyptians who will be left paying the price.

As Egypt inches towards the first anniversary of the July 3 overthrow of president Mohamed Morsi, the economy continues to flounder. The military-backed government promised stability, but it won’t deliver this through reverting to failed Mubarak-era policies and relying on handouts from Gulf Security Council (GCC) states.

Despite loud media support for the military government, discontent is high. Ongoing gas shortages and power outages, as well as anger over a new minimum wage law that excludes 75% of the labor force, sparked a wave of wildcat strikes in February that prompted the government to resign.

GCC countries paid $15bn in aid to Egypt after the July coup. Although this was quickly spent supporting the Egyptian pound and on a $4.9bn stimulus package, the national currency has since continued to slide and economic growth has stalled, at best reaching 1% in the first quarter. The budget deficit is 14% of GDP while unemployment is 13.4% and inflation is 10%.

Public and foreign debt are also accelerating, putting yet more pressure on the pound. GCC aid is not just monetary and includes fuel and natural gas, which Egypt was cavalierly exporting until last year, further highlighting Egypt's economic disintegration.

A Bank of America report in February described a presidential bid by Field Marshal Abdel Fattah Sisi as “market-friendly in the near term”. However, the bank also warned that Sisi’s holdover of officials and discredited policies from the Mubarak era suggested “a watered down version of the pre-revolution regime”. Addressing the nation in early March, Sisi lamented, “Our economic conditions are so, so difficult.” He pointed to fuel and other subsidies which cost the government $15bn a year, account for 30% of the government budget and 9% of GDP, but gave no clear prescription.

A major problem for foreign investors is angst about the legality of the privatisation programme carried out under Mubarak. After the 2011 uprising, a raft of legal challenges were launched against the widespread corruption that was exposed and judges started overturning past privatisation deals under popular pressure.

The Muslim Brotherhood (MB) government tried to square the circle. Morsi allowed challenges to the past privatisations of state-owned enterprises while encouraging small business. Before he was arrested, he made hundreds of dismissals in the military ranks and hundreds more in the bureaucracy, chipping away at the corrupt ruling elite’s stranglehold on the economy.

The MB were also catching onto how past measures by international finance groups had hurt the country, noting that money purportedly saved by an IMF “structural adjustment” launched in 1991 had actually benefitted foreign bankers, not ordinary Egyptians. Instead of a ‘slash and burn’ ending of subsidies, the Morsi government tried to make them more efficient by curtailing corruption. They re-negotiated with the IMF, finally proposing that some of the debt be cancelled as “odious debt” - a precedent that earned them no allies in Washington, though the US used the principle to cancel Iraq’s foreign debt in 2003.

Crucially, the MB also began a shift in political and economic relations with Israel. It worked directly with Hamas, even mediating Hamas-Fatah talks. The MB developed an ambitious plan to transform the Sinai, including building civilian infrastructure, creating industry, and strengthening its internal and military security, in defiance of the US-Israeli assumption that it was a no-man’s buffer zone. There were tantalising hints that a new Middle East economic constellation which would include Iran was being forged.

Egypt was ripe for such developments but Morsi's overthrow led to a reversal of many of these policies. The old secular elite has since clawed back power and has proved unwilling to make room for a less corrupt, more dynamic, more home-grown and non-Cairo-based strata of entrepreneurs.

A draft investment law now aims to prevent third parties from challenging contracts made between the government and investors. In short, investors want to have their cake and eat it: no more corrupt Mubarakite officials but also no more challenges to corrupt investment deals which often strip a state company of its assets and lay off workers, spiriting profits abroad.

As this neo-Mubarak investor-friendly climate is fashioned, it will be ordinary Egyptians who face losing their subsidies and jobs, while watching their modest new minimum wage be eaten up in inflation.

Egypt’s newly strengthened Gulf alliance has been touted as a way out of the crisis, but it is actually only leading the country down a dangerous path.

In the past, the Gulf states were protected by the British and more recently the Americans. Now, it seems, they want to buy security from Egypt. Interim Egyptian President Adly Mansour told Kuwaiti press on the eve of the Arab Summit in March that GCC security was a national responsibility for Egypt. According to Mansour, the countries were “partners in identity” that both suffered from “blind terrorism”.

The consequence of this partnership in identity is a distancing from the Palestinian cause, particularly Hamas in Gaza. This can be interpreted as a betrayal of true “partners in identity” – after all Gaza was a part of Egypt until 1967.

Israeli leaders breathed a collective sigh of relief when Sisi took power, and are busy developing newly found offshore Palestinian natural gas reserves. Tel Aviv is planning to not only end imports from Egypt (which were priced below market value and cost Egypt $1bn), but also to export Palestinian gas to Egypt to meet ongoing gas shortages. Egypt will pay an estimated four times more for these imports than it earned on its gas exports to Israel between 2005–2011.

Such an embarrassing turn of events would hardly add to Sisi’s popularity. The military is once again scrambling to look relevant, clearly unable to deal with a rapidly changing landscape and formulate a plan to save Egypt from its ongoing travails. Neither the IMF, the US, Israel, nor the GCC have reason to be optimistic about the country in either the near or long term.

- See more at: http://www.middleeasteye.net/columns/economics-egypt-s-coup#sthash.dC7db9Nb.dpuf

Egypt is forming an economic dependence on funds from Saudi Arabia and the UAE that spells economic disaster for the vast majority of ordinary Egyptians who will be left paying the price.

As Egypt inches towards the first anniversary of the July 3 overthrow of president Mohamed Morsi, the economy continues to flounder. The military-backed government promised stability, but it won’t deliver this through reverting to failed Mubarak-era policies and relying on handouts from Gulf Security Council (GCC) states.

Despite loud media support for the military government, discontent is high. Ongoing gas shortages and power outages, as well as anger over a new minimum wage law that excludes 75% of the labor force, sparked a wave of wildcat strikes in February that prompted the government to resign.

GCC countries paid $15bn in aid to Egypt after the July coup. Although this was quickly spent supporting the Egyptian pound and on a $4.9bn stimulus package, the national currency has since continued to slide and economic growth has stalled, at best reaching 1% in the first quarter. The budget deficit is 14% of GDP while unemployment is 13.4% and inflation is 10%.

Public and foreign debt are also accelerating, putting yet more pressure on the pound. GCC aid is not just monetary and includes fuel and natural gas, which Egypt was cavalierly exporting until last year, further highlighting Egypt's economic disintegration.

A Bank of America report in February described a presidential bid by Field Marshal Abdel Fattah Sisi as “market-friendly in the near term”. However, the bank also warned that Sisi’s holdover of officials and discredited policies from the Mubarak era suggested “a watered down version of the pre-revolution regime”. Addressing the nation in early March, Sisi lamented, “Our economic conditions are so, so difficult.” He pointed to fuel and other subsidies which cost the government $15bn a year, account for 30% of the government budget and 9% of GDP, but gave no clear prescription.

A major problem for foreign investors is angst about the legality of the privatisation programme carried out under Mubarak. After the 2011 uprising, a raft of legal challenges were launched against the widespread corruption that was exposed and judges started overturning past privatisation deals under popular pressure.

The Muslim Brotherhood (MB) government tried to square the circle. Morsi allowed challenges to the past privatisations of state-owned enterprises while encouraging small business. Before he was arrested, he made hundreds of dismissals in the military ranks and hundreds more in the bureaucracy, chipping away at the corrupt ruling elite’s stranglehold on the economy.

The MB were also catching onto how past measures by international finance groups had hurt the country, noting that money purportedly saved by an IMF “structural adjustment” launched in 1991 had actually benefitted foreign bankers, not ordinary Egyptians. Instead of a ‘slash and burn’ ending of subsidies, the Morsi government tried to make them more efficient by curtailing corruption. They re-negotiated with the IMF, finally proposing that some of the debt be cancelled as “odious debt” - a precedent that earned them no allies in Washington, though the US used the principle to cancel Iraq’s foreign debt in 2003.

Crucially, the MB also began a shift in political and economic relations with Israel. It worked directly with Hamas, even mediating Hamas-Fatah talks. The MB developed an ambitious plan to transform the Sinai, including building civilian infrastructure, creating industry, and strengthening its internal and military security, in defiance of the US-Israeli assumption that it was a no-man’s buffer zone. There were tantalising hints that a new Middle East economic constellation which would include Iran was being forged.

Egypt was ripe for such developments but Morsi's overthrow led to a reversal of many of these policies. The old secular elite has since clawed back power and has proved unwilling to make room for a less corrupt, more dynamic, more home-grown and non-Cairo-based strata of entrepreneurs.

A draft investment law now aims to prevent third parties from challenging contracts made between the government and investors. In short, investors want to have their cake and eat it: no more corrupt Mubarakite officials but also no more challenges to corrupt investment deals which often strip a state company of its assets and lay off workers, spiriting profits abroad.

As this neo-Mubarak investor-friendly climate is fashioned, it will be ordinary Egyptians who face losing their subsidies and jobs, while watching their modest new minimum wage be eaten up in inflation.

Egypt’s newly strengthened Gulf alliance has been touted as a way out of the crisis, but it is actually only leading the country down a dangerous path.

In the past, the Gulf states were protected by the British and more recently the Americans. Now, it seems, they want to buy security from Egypt. Interim Egyptian President Adly Mansour told Kuwaiti press on the eve of the Arab Summit in March that GCC security was a national responsibility for Egypt. According to Mansour, the countries were “partners in identity” that both suffered from “blind terrorism”.

The consequence of this partnership in identity is a distancing from the Palestinian cause, particularly Hamas in Gaza. This can be interpreted as a betrayal of true “partners in identity” – after all Gaza was a part of Egypt until 1967.

Israeli leaders breathed a collective sigh of relief when Sisi took power, and are busy developing newly found offshore Palestinian natural gas reserves. Tel Aviv is planning to not only end imports from Egypt (which were priced below market value and cost Egypt $1bn), but also to export Palestinian gas to Egypt to meet ongoing gas shortages. Egypt will pay an estimated four times more for these imports than it earned on its gas exports to Israel between 2005–2011.

Such an embarrassing turn of events would hardly add to Sisi’s popularity. The military is once again scrambling to look relevant, clearly unable to deal with a rapidly changing landscape and formulate a plan to save Egypt from its ongoing travails. Neither the IMF, the US, Israel, nor the GCC have reason to be optimistic about the country in either the near or long term.

- See more at: http://www.middleeasteye.net/columns/economics-egypt-s-coup#sthash.dC7db9Nb.dpuf

Egypt is forming an economic dependence on funds from Saudi Arabia and the UAE that spells economic disaster for the vast majority of ordinary Egyptians who will be left paying the price.

As Egypt inches towards the first anniversary of the July 3 overthrow of president Mohamed Morsi, the economy continues to flounder. The military-backed government promised stability, but it won’t deliver this through reverting to failed Mubarak-era policies and relying on handouts from Gulf Security Council (GCC) states.

Despite loud media support for the military government, discontent is high. Ongoing gas shortages and power outages, as well as anger over a new minimum wage law that excludes 75% of the labor force, sparked a wave of wildcat strikes in February that prompted the government to resign.

GCC countries paid $15bn in aid to Egypt after the July coup. Although this was quickly spent supporting the Egyptian pound and on a $4.9bn stimulus package, the national currency has since continued to slide and economic growth has stalled, at best reaching 1% in the first quarter. The budget deficit is 14% of GDP while unemployment is 13.4% and inflation is 10%.

Public and foreign debt are also accelerating, putting yet more pressure on the pound. GCC aid is not just monetary and includes fuel and natural gas, which Egypt was cavalierly exporting until last year, further highlighting Egypt's economic disintegration.

A Bank of America report in February described a presidential bid by Field Marshal Abdel Fattah Sisi as “market-friendly in the near term”. However, the bank also warned that Sisi’s holdover of officials and discredited policies from the Mubarak era suggested “a watered down version of the pre-revolution regime”. Addressing the nation in early March, Sisi lamented, “Our economic conditions are so, so difficult.” He pointed to fuel and other subsidies which cost the government $15bn a year, account for 30% of the government budget and 9% of GDP, but gave no clear prescription.

A major problem for foreign investors is angst about the legality of the privatisation programme carried out under Mubarak. After the 2011 uprising, a raft of legal challenges were launched against the widespread corruption that was exposed and judges started overturning past privatisation deals under popular pressure.

The Muslim Brotherhood (MB) government tried to square the circle. Morsi allowed challenges to the past privatisations of state-owned enterprises while encouraging small business. Before he was arrested, he made hundreds of dismissals in the military ranks and hundreds more in the bureaucracy, chipping away at the corrupt ruling elite’s stranglehold on the economy.

The MB were also catching onto how past measures by international finance groups had hurt the country, noting that money purportedly saved by an IMF “structural adjustment” launched in 1991 had actually benefitted foreign bankers, not ordinary Egyptians. Instead of a ‘slash and burn’ ending of subsidies, the Morsi government tried to make them more efficient by curtailing corruption. They re-negotiated with the IMF, finally proposing that some of the debt be cancelled as “odious debt” - a precedent that earned them no allies in Washington, though the US used the principle to cancel Iraq’s foreign debt in 2003.

Crucially, the MB also began a shift in political and economic relations with Israel. It worked directly with Hamas, even mediating Hamas-Fatah talks. The MB developed an ambitious plan to transform the Sinai, including building civilian infrastructure, creating industry, and strengthening its internal and military security, in defiance of the US-Israeli assumption that it was a no-man’s buffer zone. There were tantalising hints that a new Middle East economic constellation which would include Iran was being forged.

Egypt was ripe for such developments but Morsi's overthrow led to a reversal of many of these policies. The old secular elite has since clawed back power and has proved unwilling to make room for a less corrupt, more dynamic, more home-grown and non-Cairo-based strata of entrepreneurs.

A draft investment law now aims to prevent third parties from challenging contracts made between the government and investors. In short, investors want to have their cake and eat it: no more corrupt Mubarakite officials but also no more challenges to corrupt investment deals which often strip a state company of its assets and lay off workers, spiriting profits abroad.

As this neo-Mubarak investor-friendly climate is fashioned, it will be ordinary Egyptians who face losing their subsidies and jobs, while watching their modest new minimum wage be eaten up in inflation.

Egypt’s newly strengthened Gulf alliance has been touted as a way out of the crisis, but it is actually only leading the country down a dangerous path.

In the past, the Gulf states were protected by the British and more recently the Americans. Now, it seems, they want to buy security from Egypt. Interim Egyptian President Adly Mansour told Kuwaiti press on the eve of the Arab Summit in March that GCC security was a national responsibility for Egypt. According to Mansour, the countries were “partners in identity” that both suffered from “blind terrorism”.

The consequence of this partnership in identity is a distancing from the Palestinian cause, particularly Hamas in Gaza. This can be interpreted as a betrayal of true “partners in identity” – after all Gaza was a part of Egypt until 1967.

Israeli leaders breathed a collective sigh of relief when Sisi took power, and are busy developing newly found offshore Palestinian natural gas reserves. Tel Aviv is planning to not only end imports from Egypt (which were priced below market value and cost Egypt $1bn), but also to export Palestinian gas to Egypt to meet ongoing gas shortages. Egypt will pay an estimated four times more for these imports than it earned on its gas exports to Israel between 2005–2011.

Such an embarrassing turn of events would hardly add to Sisi’s popularity. The military is once again scrambling to look relevant, clearly unable to deal with a rapidly changing landscape and formulate a plan to save Egypt from its ongoing travails. Neither the IMF, the US, Israel, nor the GCC have reason to be optimistic about the country in either the near or long term.

- See more at: http://www.middleeasteye.net/columns/economics-egypt-s-coup#sthash.dC7db9Nb.dpuf

Egypt is forming an economic dependence on funds from Saudi Arabia and the UAE that spells economic disaster for the vast majority of ordinary Egyptians who will be left paying the price.

As Egypt inches towards the first anniversary of the July 3 overthrow of president Mohamed Morsi, the economy continues to flounder. The military-backed government promised stability, but it won’t deliver this through reverting to failed Mubarak-era policies and relying on handouts from Gulf Security Council (GCC) states.

Despite loud media support for the military government, discontent is high. Ongoing gas shortages and power outages, as well as anger over a new minimum wage law that excludes 75% of the labor force, sparked a wave of wildcat strikes in February that prompted the government to resign.

GCC countries paid $15bn in aid to Egypt after the July coup. Although this was quickly spent supporting the Egyptian pound and on a $4.9bn stimulus package, the national currency has since continued to slide and economic growth has stalled, at best reaching 1% in the first quarter. The budget deficit is 14% of GDP while unemployment is 13.4% and inflation is 10%.

Public and foreign debt are also accelerating, putting yet more pressure on the pound. GCC aid is not just monetary and includes fuel and natural gas, which Egypt was cavalierly exporting until last year, further highlighting Egypt's economic disintegration.

A Bank of America report in February described a presidential bid by Field Marshal Abdel Fattah Sisi as “market-friendly in the near term”. However, the bank also warned that Sisi’s holdover of officials and discredited policies from the Mubarak era suggested “a watered down version of the pre-revolution regime”. Addressing the nation in early March, Sisi lamented, “Our economic conditions are so, so difficult.” He pointed to fuel and other subsidies which cost the government $15bn a year, account for 30% of the government budget and 9% of GDP, but gave no clear prescription.

A major problem for foreign investors is angst about the legality of the privatisation programme carried out under Mubarak. After the 2011 uprising, a raft of legal challenges were launched against the widespread corruption that was exposed and judges started overturning past privatisation deals under popular pressure.

The Muslim Brotherhood (MB) government tried to square the circle. Morsi allowed challenges to the past privatisations of state-owned enterprises while encouraging small business. Before he was arrested, he made hundreds of dismissals in the military ranks and hundreds more in the bureaucracy, chipping away at the corrupt ruling elite’s stranglehold on the economy.

The MB were also catching onto how past measures by international finance groups had hurt the country, noting that money purportedly saved by an IMF “structural adjustment” launched in 1991 had actually benefitted foreign bankers, not ordinary Egyptians. Instead of a ‘slash and burn’ ending of subsidies, the Morsi government tried to make them more efficient by curtailing corruption. They re-negotiated with the IMF, finally proposing that some of the debt be cancelled as “odious debt” - a precedent that earned them no allies in Washington, though the US used the principle to cancel Iraq’s foreign debt in 2003.

Crucially, the MB also began a shift in political and economic relations with Israel. It worked directly with Hamas, even mediating Hamas-Fatah talks. The MB developed an ambitious plan to transform the Sinai, including building civilian infrastructure, creating industry, and strengthening its internal and military security, in defiance of the US-Israeli assumption that it was a no-man’s buffer zone. There were tantalising hints that a new Middle East economic constellation which would include Iran was being forged.

Egypt was ripe for such developments but Morsi's overthrow led to a reversal of many of these policies. The old secular elite has since clawed back power and has proved unwilling to make room for a less corrupt, more dynamic, more home-grown and non-Cairo-based strata of entrepreneurs.

A draft investment law now aims to prevent third parties from challenging contracts made between the government and investors. In short, investors want to have their cake and eat it: no more corrupt Mubarakite officials but also no more challenges to corrupt investment deals which often strip a state company of its assets and lay off workers, spiriting profits abroad.

As this neo-Mubarak investor-friendly climate is fashioned, it will be ordinary Egyptians who face losing their subsidies and jobs, while watching their modest new minimum wage be eaten up in inflation.

Egypt’s newly strengthened Gulf alliance has been touted as a way out of the crisis, but it is actually only leading the country down a dangerous path.

In the past, the Gulf states were protected by the British and more recently the Americans. Now, it seems, they want to buy security from Egypt. Interim Egyptian President Adly Mansour told Kuwaiti press on the eve of the Arab Summit in March that GCC security was a national responsibility for Egypt. According to Mansour, the countries were “partners in identity” that both suffered from “blind terrorism”.

The consequence of this partnership in identity is a distancing from the Palestinian cause, particularly Hamas in Gaza. This can be interpreted as a betrayal of true “partners in identity” – after all Gaza was a part of Egypt until 1967.

Israeli leaders breathed a collective sigh of relief when Sisi took power, and are busy developing newly found offshore Palestinian natural gas reserves. Tel Aviv is planning to not only end imports from Egypt (which were priced below market value and cost Egypt $1bn), but also to export Palestinian gas to Egypt to meet ongoing gas shortages. Egypt will pay an estimated four times more for these imports than it earned on its gas exports to Israel between 2005–2011.

Such an embarrassing turn of events would hardly add to Sisi’s popularity. The military is once again scrambling to look relevant, clearly unable to deal with a rapidly changing landscape and formulate a plan to save Egypt from its ongoing travails. Neither the IMF, the US, Israel, nor the GCC have reason to be optimistic about the country in either the near or long term.

- See more at: http://www.middleeasteye.net/columns/economics-egypt-s-coup#sthash.dC7db9Nb.dpuf

Egypt is forming an economic dependence on funds from Saudi Arabia and the UAE that spells economic disaster for the vast majority of ordinary Egyptians who will be left paying the price.

As Egypt inches towards the first anniversary of the July 3 overthrow of president Mohamed Morsi, the economy continues to flounder. The military-backed government promised stability, but it won’t deliver this through reverting to failed Mubarak-era policies and relying on handouts from Gulf Security Council (GCC) states.

Despite loud media support for the military government, discontent is high. Ongoing gas shortages and power outages, as well as anger over a new minimum wage law that excludes 75% of the labor force, sparked a wave of wildcat strikes in February that prompted the government to resign.

GCC countries paid $15bn in aid to Egypt after the July coup. Although this was quickly spent supporting the Egyptian pound and on a $4.9bn stimulus package, the national currency has since continued to slide and economic growth has stalled, at best reaching 1% in the first quarter. The budget deficit is 14% of GDP while unemployment is 13.4% and inflation is 10%.

Public and foreign debt are also accelerating, putting yet more pressure on the pound. GCC aid is not just monetary and includes fuel and natural gas, which Egypt was cavalierly exporting until last year, further highlighting Egypt's economic disintegration.

A Bank of America report in February described a presidential bid by Field Marshal Abdel Fattah Sisi as “market-friendly in the near term”. However, the bank also warned that Sisi’s holdover of officials and discredited policies from the Mubarak era suggested “a watered down version of the pre-revolution regime”. Addressing the nation in early March, Sisi lamented, “Our economic conditions are so, so difficult.” He pointed to fuel and other subsidies which cost the government $15bn a year, account for 30% of the government budget and 9% of GDP, but gave no clear prescription.

A major problem for foreign investors is angst about the legality of the privatisation programme carried out under Mubarak. After the 2011 uprising, a raft of legal challenges were launched against the widespread corruption that was exposed and judges started overturning past privatisation deals under popular pressure.

The Muslim Brotherhood (MB) government tried to square the circle. Morsi allowed challenges to the past privatisations of state-owned enterprises while encouraging small business. Before he was arrested, he made hundreds of dismissals in the military ranks and hundreds more in the bureaucracy, chipping away at the corrupt ruling elite’s stranglehold on the economy.

The MB were also catching onto how past measures by international finance groups had hurt the country, noting that money purportedly saved by an IMF “structural adjustment” launched in 1991 had actually benefitted foreign bankers, not ordinary Egyptians. Instead of a ‘slash and burn’ ending of subsidies, the Morsi government tried to make them more efficient by curtailing corruption. They re-negotiated with the IMF, finally proposing that some of the debt be cancelled as “odious debt” - a precedent that earned them no allies in Washington, though the US used the principle to cancel Iraq’s foreign debt in 2003.

Crucially, the MB also began a shift in political and economic relations with Israel. It worked directly with Hamas, even mediating Hamas-Fatah talks. The MB developed an ambitious plan to transform the Sinai, including building civilian infrastructure, creating industry, and strengthening its internal and military security, in defiance of the US-Israeli assumption that it was a no-man’s buffer zone. There were tantalising hints that a new Middle East economic constellation which would include Iran was being forged.

Egypt was ripe for such developments but Morsi's overthrow led to a reversal of many of these policies. The old secular elite has since clawed back power and has proved unwilling to make room for a less corrupt, more dynamic, more home-grown and non-Cairo-based strata of entrepreneurs.

A draft investment law now aims to prevent third parties from challenging contracts made between the government and investors. In short, investors want to have their cake and eat it: no more corrupt Mubarakite officials but also no more challenges to corrupt investment deals which often strip a state company of its assets and lay off workers, spiriting profits abroad.

As this neo-Mubarak investor-friendly climate is fashioned, it will be ordinary Egyptians who face losing their subsidies and jobs, while watching their modest new minimum wage be eaten up in inflation.

Egypt’s newly strengthened Gulf alliance has been touted as a way out of the crisis, but it is actually only leading the country down a dangerous path.

In the past, the Gulf states were protected by the British and more recently the Americans. Now, it seems, they want to buy security from Egypt. Interim Egyptian President Adly Mansour told Kuwaiti press on the eve of the Arab Summit in March that GCC security was a national responsibility for Egypt. According to Mansour, the countries were “partners in identity” that both suffered from “blind terrorism”.

The consequence of this partnership in identity is a distancing from the Palestinian cause, particularly Hamas in Gaza. This can be interpreted as a betrayal of true “partners in identity” – after all Gaza was a part of Egypt until 1967.

Israeli leaders breathed a collective sigh of relief when Sisi took power, and are busy developing newly found offshore Palestinian natural gas reserves. Tel Aviv is planning to not only end imports from Egypt (which were priced below market value and cost Egypt $1bn), but also to export Palestinian gas to Egypt to meet ongoing gas shortages. Egypt will pay an estimated four times more for these imports than it earned on its gas exports to Israel between 2005–2011.

Such an embarrassing turn of events would hardly add to Sisi’s popularity. The military is once again scrambling to look relevant, clearly unable to deal with a rapidly changing landscape and formulate a plan to save Egypt from its ongoing travails. Neither the IMF, the US, Israel, nor the GCC have reason to be optimistic about the country in either the near or long term.

- See more at: http://www.middleeasteye.net/columns/economics-egypt-s-coup#sthash.dC7db9Nb.dpuf

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Canadian Eric Walberg is known worldwide as a journalist specializing in the Middle East, Central Asia and Russia. A graduate of University of Toronto and Cambridge in economics, he has been writing on East-West relations since the 1980s.

He has lived in both the Soviet Union and Russia, and then Uzbekistan, as a UN adviser, writer, translator and lecturer. Presently a writer for the foremost Cairo newspaper, Al Ahram, he is also a regular contributor to Counterpunch, Dissident Voice, Global Research, Al-Jazeerah and Turkish Weekly, and is a commentator on Voice of the Cape radio.

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Eric's latest book The Canada Israel Nexus is available here http://www.claritypress.com/WalbergIV.html