Friday, October 12, 2012

The Muslim Brotherhood and Egypt's Coming Economic Storm

October 11, 2012

Much of the news out of Egypt since the "Arab Spring" uprising has focused on the Muslim Brotherhood and its role in the collapse of the Mubarak government; and later its victory in the parliamentary elections in 2011 and slender win in the presidential election in 2012. That Egyptian narrative is gradually changing to one much more complicated and less visible focused on Egypt's economic crisis which will unfold slowly, but may then engulf the country like a title wave over the next few years. That title wave could drive Egypt to a much more violent second revolution.

Compared to the carnage in Libya, Yemen, and Syria, the first Egyptian revolution was relatively restrained. By the end of it, a thousand people rather than tens of thousands had died, the creaky physical and industrial infrastructure of the country remained intact, and the organs of state authority appear to continue to function however corrupt and inefficient. But appearances can be misleading as the country's coming economic crisis could lead to an unraveling of the state.

Egypt faces four economic crises: rapidly rising food prices and budget deficits, a precipitous economic slowdown driving high unemployment even higher, and a long-term crisis over the water resources of the Nile River.  

The political chaos in the country has damaged Egypt's tourism industry, which represents nearly 7 percent of the country's GDP and represents its largest source of foreign currency needed to import wheat-the staple grain nearly half the population survives on. Official sources report tourism declined by 30 percent in 2011, but unofficial sources report much more precipitous declines of between 40-80 percent in 2012. 

Prior to the revolution the economy was growing at an impressive 5 percent, while last year the economy grew an anemic 1 percent. Under 25-year-old unemployment may be more than 50 percent and rising. Studies of developing countries suggest that countries with a high relative proportion of unemployed young men-often hungry and angry-have higher the risk of internal conflict.

According to the Wall Street Journal, Egypt is the largest per capita importer and consumer of wheat in the world and is thus particularly sensitive to world food prices. This past summer because of drought conditions in major grain producing countries, wheat and corn prices on world markets rose 25 percent, on top of the increases in 2010 which helped ignite the Arab revolutions. Egypt subsidies bread to maintain political stability, but those subsidies are now economically and fiscally unsustainable. Surveys in 2011 by the U.S. Embassy in Cairo showed at least 50 percent of the population felt economically insecure, a proxy for the fears of the poorest half of the country that they may not be able to feed themselves particularly if the bread subsidies end or are altered. Any reforms of the Egyptian food system-however badly needed-could destabilize a fragile political system in a precarious transition. And yet bread and energy subsidies are bankrupting the national treasury.

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