Two years of Sisi’s rule… Authoritarian recovery and economic deterioration

Two years ago, Egyptians were divided between optimists and pessimists as Abdulfattah al-Sisi neared the presidential office. But only halfway through his term, the picture is very different: large sections of the Egyptian people are indignant at his rule that oversees the deterioration of the economic situation, and many voices that defended al-Sisi in 2014 are silent today as the criticisms pile up against him.

The economic deterioration comes amid a growing repression of liberties, under the cover of the legislation that was passed in the absence of parliament in the aftermath of the 30 June 2013 events.

After the election of the new parliament, the absence of any political dialogue with the authorities remains clear. The government persists on applying the economic policies that begun with al-Sisi’s election, in an unaccountable manner and without any pressure from Egypt’s political actors, with the exception of the obstruction in parliament of the civil service law.

To understand what has happened during the two years of al-Sisi’s rule, we need to go back to the election day; it was then that large sections of the middle class, yearning for stability three years after the 2011 revolution, considered that the country’s return to calm could only be guaranteed by the election of the strongman behind the 30th of June regime.

Around the same time as al-Sisi’s election, the government issued the general budget for the year 2014-2015; the budget aimed to tackle the accumulating deficit by proposing solutions that were largely detrimental to the interests of the pro-Sisi middle class, however not many were receptive to the economic signals in the midst of the political hustle.

The principal attack against the middle classes materialised in the liberalisation of fuel prices, which will unravel gradually over five years according to the government. Indeed, the government’s bill for subsidies on fossil materials is down by thirty billion Egyptian Pounds this year. However the increase in fuel prices wasn’t followed by a wave of popular anger like in 1977, as the mood tended towards stability and optimism in the future.

Along with the austerity reforms, the al-Sisi regime announced a series of measures indicating that the rich would contribute their share to the deficit reduction, notably by the introduction of the so-called “wealthy tax” on annual income above one million Egyptian Pounds – albeit as a temporary measure only meant to last three years.

Additionally, taxes were imposed on dividends paid by companies to their shareholders as well as on stock exchange speculations that did not directly benefit productive economic activity. The government also offered social benefits to the poor in the form of cash grants that would mitigate the effect of the increase in fuel prices.
But the al-Sisi government quickly reversed the measures that burdened the rich by freezing the stock exchange speculation tax and canceling the temporary wealthy tax without a clear justification. Additionally, there were delays in the payment of subsidies to the poor.

The picture had changed as the second tax year rolled in, since the collapse in oil prices during the second half of 2014 had alleviated the burden represented by the fuel subsidies. This led the government to slow down the rate of subsidies restructuration, while looking for other measures that might help reduce the deficit even if they still had to be paid for by the middle and lower classes.

The prelude to the new measures that targeted the middle class could be found in the government’s declarations during the Sharm el-Sheikh economic summit. In the presence of investors, the government insisted on appearing capable of controlling its financial crisis and creating an investment-friendly environment for the foreign companies it hosted on the shores of the Red sea.

It was then that El-Sisi’s government announced the civil service law that clearly aimed at reducing the cost of wages in the public sector; a new law for the electricity sector that increased the share of private investment was also announced, as the government headed towards the gradual liberalisation of electricity prices.
The 2015-2016 budget reiterated the attacks on civil servants with the growth of the state’s wage budget limited to 8.6% against 12.4% in the preceding year.
But have al-Sisi’s austerity policies led to an economic recovery? All the indicators point to the contrary, and warn us that continuing on this path will lead us to a financial crisis.

While it is true that the economy is moving, as the newspapers feature stories on new projects and plants, the overall reports indicate that economic growth is roughly equal to the of 3% rate of population growth. In other words, we are barely covering the needs of newborns and are living in suffocating conditions; after the economic growth rate (4.2%) had surpassed the population growth rate for the first time since the revolution during al-Sisi first tax year, some economic studies suggest this year’s growth will not exceed 3%.

Last year’s high growth rate was due to an unexplained surge in manufacturing growth, but the latest indicators from the period between July and December 2015 suggest a contraction of 0.4% in this sector. Tourism has violently contracted by 15%, understandably given the insecurity and the authorities’ failure to prevent terrorism.

Slow growth coincides with unemployment rates that remain above 10% as well as high inflation levels, adding inactivity and high prices to the list of Egyptians’ worries.
The principal inflation rate that monitors the price of commodities unaffected by fluctuations peaked last April at its highest level since August 2014, and the inflation basket of urban consumer goods also rose to its highest level since last January.
The rising inflation comes against the backdrop of a crisis in foreign currency flows that caused consecutive drops in the Egyptian pound’s value against the dollar and the consequent increase in prices of imported commodities.

The al-Sisi administration failed to improve the economic situation, whether by the criteria of ordinary people’s interests or those of businessmen and capitalists. All are apprehending the future in a country that suffers from a weak local currency and a slowing down of its economic growth.

Disaffected voices rise from the various classes, as the authorities loiter hesitantly. The business community is awaiting reforms like the general application of the sales tax that should generate revenue at the expense of the poorest classes, but the government is in no hurry to implement it in spite of its recurrent discourse on the subject.

As for the middle classes that supported al-Sisi and expected fast positive effects from the large national projects like the enlargement of the Suez canal, they are awakening from the president’s supporters false propaganda as they witness the drop in the Suez canal’s revenues in the context of a global economic slowdown.