U.S. Foreign Aid in Post-Revolution Egypt: Is it Working?

CAIRO, Egypt — On January 18, 2011, an Egyptian man set himself ablaze in front of the Egyptian parliament, reminiscent of Tunisian grocer Mohmmed Bouazizi, whose self-immolation a month prior was considered the “spark” of the Tunisian Revolution.

The suicide of this “Egyptian Bouazizi” and the violent protests that followed were the consequence of a long list of grievances, including high levels of unemployment, inflation, and government corruption.

Egyptian President Hosni Mubarak resigned on February 11 of that year.

Eventually, after frequent episodes of violence between protesters and the oppressive interim government, Egyptians held two constitutional referendums (2011 and 2014), a parliamentary election, and a presidential election during which incumbent president Abdel Fattah el-Sisi assumed office.

Today, just over seven years after the Mubarak government came to an end, many of the Egyptian people’s revolutionary grievances have seen slight improvement. However, many more of Egypt’s socioeconomic ailments remain uncured, worsening in some cases.

From December 2009 to April 2010, the Department of Economics at the American University in Cairo administered a survey of Egyptian households to determine what Egyptians view as the causes and indicators of poverty. The survey found that the top three indicators were scarce durables, inadequate housing, and deficient healthcare.

A composite indicator of poverty (CIP) was constructed in that same study, revealing that while some of the Mubarak government’s policies had slightly reduced poverty, “the deprivation of consumer durables, housing, healthcare and food increased popular discontent.”

At the time of the revolution, roughly 43 percent of the population was living on $2 PPP per day.

From 2008 to 2010, Egypt’s GDP growth slid from 7.2 percent to 5.4 percent. As of 2016 it has fallen even lower, sinking to less than 4.3 percent. During that same period, inflation peaked in August 2008 at 23.7 percent, maintaining double-digit levels ever since.

The unemployment rate in Egypt is also looking grim, increasing from 9 percent in 2010 to 12 percent in 2011, showing little sign of improvement even after Sisi was elected.

The United States has long had a friendly economic relationship with Egypt, providing it with over $60 billion in foreign aid since 1978 (the second largest recipient next to Israel). Many billions have gone into food and aid, but billions more were allocated towards strengthening Egypt’s military.

It is with the best intentions that the U.S. endows Egypt with such large sums of money, recently providing debt relief and loan guarantees to small-and-medium-sized businesses to alleviate the economic burdens of democratic transition.

However, while there is no consensus on the general effects of foreign aid, a 2013 Egypt-specific study conducted by the Department of Economics and Foreign Trade at Helwan University concluded that the Egyptian government’s allocation of American aid towards financing imports rather than Egypt’s productive activities has had a negative impact on growth in both the long-run and short-run.

The most effectual solution to Egypt’s poverty and unemployment problems, among other things, must ultimately come from decisions on the inside.

As the earlier mentioned American University report suggests, a social safety net ought to be established immediately for the lowest-income groups in the country. The government of Egypt must also properly allocate its foreign aid dollars towards stimulating the private sector, which has created approximately 70 percent of jobs in the country, and the Egyptian Pound must be stabilized to attract more foreign direct investment, which has climbed steadily since 2011.

It is the responsibility of the United States, if it insists on continuing foreign aid to Egypt, to urge the Sisi government in the direction of these reforms so not a dollar goes to waste. The Egyptian market is a budding, developing economy in which the main buyers of local stocks are foreign investors. It would be a missed opportunity for growth and human development if the Egyptian private sector were not nurtured in this way.

For more information on inflation, unemployment, GDP growth, and foreign direct investment in Egypt, follow the respective hyperlinks.

For a timeline of the 2011 Egyptian Revolution and the subsequent political struggle, click here.

 

Author: T. W. Tyler

Reader, writer, student.

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