As Election Begins, El-Sisi Ponders How Hard to Push Egypt

CAIRO (Capital Markets in Africa) – Horns blare as the car screeches to a halt near a Cairo supermarket. “Don’t you have any integrity?” the driver screams at a man erecting a poster of Egyptian President Abdel-Fattah El-Sisi ahead of this week’s elections. “Hasn’t he done enough to us?”

The billboard was extolling the achievements of the former army general, who is running virtually unopposed for a second, four-year term with seemingly much to brag about.

After teetering on the brink of collapse, Egypt’s economy is growing at its fastest pace since the 2011 uprising. Foreign reserves have surged to a record after El-Sisi implemented painful economic measures his predecessors had balked at for decades. And from a new capital to an expanded Suez Canal, El-Sisi has sought to build a legacy as a statesman who saved Egypt from Islamist rule and restored its role as a regional power.

If he pushes Egyptians much harder, however, El-Sisi could be remembered as the leader who broke them. As ballot stations open on Monday, weighing on many voters’ minds is the soaring cost of living. Subsidy cuts and currency liberalization kept inflation above 30 percent for much of the past year and El-Sisi’s mega-projects seem a world away from teeming neighborhoods where many still struggle to find well-paid jobs.

The hardship faced by ordinary people could test the president’s resolve to stay the course on economic reforms without risking social unrest in a country where protests helped topple two presidents in the last seven years. A low turnout in an election that offers little choice risks weakening his mandate to inflict more economic pain to repair public finances.

In a recent campaign video, El-Sisi acknowledged the toll. “To the greatest possible extent, we try to ensure that the measures taken don’t break the citizen’s back,” he said. “They exhaust him, but don’t break his back.”

Unpopular Steps
Conflict, terrorism and the drop in oil prices since 2014 have forced governments from Saudi Arabia to Tunisia to take unpopular steps to overhaul their economies. It was the need to maintain stability in the most populous Arab country that prompted global powers, fretting about terrorism and refugees, to support Egypt’s 2016 bid for a $12 billion loan from the International Monetary Fund.

While public anger has prompted some governments to slow the pace of subsidy cuts and other measures, El-Sisi has forged ahead, combining a public-relations campaign to explain the urgent need for change with a security crackdown that has all-but silenced dissent.

The president’s most viable election challengers, including a top general and a former prime minister, have been either booted from the race, arrested or withdrawn citing an undemocratic climate. And although he has plenty of genuine support, some lament the absence of real choice seven years after the revolt that ended Hosni Mubarak’s three-decade rule.

“This election is like going to a cafe where the choice is tea or tea when all you’ve had to drink for four years is tea,” said Abdel-Rahman Mohamed, a 43-year-old office worker, who isn’t planning to vote.

With some of the toughest steps already taken, inflation is beginning to recede, allowing the central bank to cut interest rates that had made it prohibitively expensive for companies to borrow. The government is also overhauling its subsidy system with a cash-transfer program to shield the poorest from inflation in a country where more than 27 percent lived in poverty before the currency was floated.

Lower Unemployment
In its latest meeting, the central bank highlighted a drop in unemployment to 11.3 percent in the last quarter of 2017, compared with more than 13 percent when El-Sisi took power.

But higher global oil prices mean a plan to gradually eliminate energy subsidies, a centerpiece of the IMF-backed overhaul, could fuel further inflation. Two earlier rounds of cuts drove up average transport costs by more than 35 percent. The plan was designed in 2016 when oil prices were at about $45 a barrel, almost $20 below today’s prices.

That leaves the government with an uncomfortable choice: bust its deficit target or pile more pain onto consumers. It has already raised the budget deficit forecast for this fiscal year to 9.8 percent of gross domestic product from 9 percent, said Deputy Finance Minister Mohamed Maeet, mainly due to higher oil prices.

Osama Kamal, a former oil minister, estimates that every dollar-increase in the price of oil raises the cost of subsidies by about 2 percent of total outlay.

“For the government, the situation is economically very complicated and isn’t very pleasant,” said Kamal. “Every time they try to reform the system, something external happens and muddles the process.”

Social Risks?
For people like Tarek Abdalla, a Cairo shop clerk who makes 1,100 pounds ($62) a month, there is little left to squeeze. After handing some money to his parents, paying his bus fare, breakfast and lunch, he’s left with less than $1 a day. “We’re scraping bottom,” said the 26-year-old.

Such struggles highlight the challenges El-Sisi faces in his second term as he contends with more intractable problems such as corruption and reducing the state’s role in the economy. In a report released in September, the IMF said it was important to limit the military’s involvement in commerce and allow the private sector to flourish.

Those changes are needed to attract long-term investments outside the oil and gas industry and create jobs for a fast-growing population. Though El-Sisi’s reforms have unleashed a deluge of foreign inflows over the past year, most money has gone into debt or stocks.

Samir Radwan, a former finance minister, said Egypt should learn from the pre-2011 experience and aim to limit inequalities that may lead to public anger.

“We are facing a similar situation as we did in 2010, when economic indicators were very good but there was poor income distribution and increased poverty,” he said. “With his second term, El-Sisi has a golden opportunity to focus on job-creation because if the current trend continues, stability and social peace will be threatened.”