• 23:23
  • Monday ,25 January 2016
العربية

After high hopes for Egypt, economy slumps following 2011 Uprising

By-aswatmasriya

Home News

00:01

Monday ,25 January 2016

After high hopes for Egypt, economy slumps following 2011 Uprising

Egypt's failing economic conditions in the past few years are often linked to the 2011 Uprising but it seems that the events that followed the uprising were not necessarily inevitable.

Initially, the expectations of businessmen and international organisations voiced an air of optimism shortly after Egypt's president for 30 years, Hosni Mubarak stepped down following 18 continuous days of protests.    
 
Despite the turmoil that followed the uprising, there was high aspiration for the future Egypt’s economy. The uprising was thought to have opened the door for economic reform, for curbing corruption and by extension, attracting investments.  
 
In 2011, the International Monetary Fund (IMF) stated that the uprising could unlock wide opportunities for the Egyptian economy. Ratna Sahay, the IMF’s deputy director in the Middle East and Central Asia Department and the head of IMF's mission in Egypt at the time, said in Nov 2011 that “Egypt’s medium-term economic potential is promising.”
 
The World Bank encouraged further citizen participation through a statement in April 2011 and said participation, coupled with a better administration are essential for economic development.
 
A July 2011 report by the Carnegie Endowment for International Peace said that “the situation is not nearly as dire as it is often portrayed,” when it comes to Egypt’s economy. The report cited the economic possibilities that the uprising could have opened.
 
The report made recommendations to the Egyptian government including the promotion of equal opportunities, the maintenance of a vibrant civil society and transparency.    
 
Some investors even stated that the uprising bore the possibility of attracting further investors, while Reuters quoted one businessman as saying that if the Arab Spring had taken place five years earlier, most international companies would have been working out of this region.
 
In one of its reports in 2011, The Economist asked, "Is the revolution good for business?" Many foreign development banks were “eager to help democracy succeed,” the magazine said.
 
“The revolution could make Egypt more prosperous, if it leads to less corruption, stronger institutions, greater diaspora goodwill and a more motivated population,” the report read.
 
Ahmed Heikal, the chairman and founder of Citadel Capital, told The Economist in June 2011 that if everything goes smoothly, Egypt could be Turkey within the next ten years.
 
However, the years following the uprising witnessed turbulence that has pushed the Egyptian economy to a slowdown. Gross Domestic Product hovered around 2 per cent annual growth in the years after the uprising and rose only in the past fiscal year, to 4.2 per cent.
 
Gulf aid to Egypt after the July 2013 power shift was an important transformation in supporting Egypt's ailing economy. Egypt received a total of approximately $16.7 billion in Gulf funds in 2013-2014.
 
The Gulf funds also contributed to the maintenance of Egypt’s foreign exchange reserves, and to supplying Egypt with petroleum products.
 
Credit rating agencies, however positive they were about the Gulf dollars, were still weary of the country’s political situation.
 
Fear surrounding the prospects of the Egyptian economy persists, especially with the gradual decline of Gulf aid. Foreign exchange reserves are likely to cover only about three months of imports, compared to the over nine months that it could cover in 2010.
 
In a Standard & Poor's report in November 2015, the agency said that foreign funding pressures on Egypt are likely to continue.
 
Egypt's social-political environment remains fragile, and the government’s economic reform plans for controlling budget deficit are still risky, say rating agencies including Standard & Poor's.