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Thu. February 21, 2019
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China-Egypt Partnership Fraught With Political Risk
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Egyptian President Abdel Fattah al-Sisi is scheduled to visit China in the coming weeks. This trip comes at a very opportune time for the president. In an attempt to arrest the nation’s economic erosion, Egypt has stepped up its efforts to attract investment from China.

Egypt’s security and stability is contingent upon the development of tangible economic improvements to the nation’s general population. Likewise, Egypt’s economic prosperity is highly dependent on the government’s ability to maintain political stability and security.

Modest economic recovery underway

President al-Sisi has thus far taken aggressive measures to steady the Egyptian economy. The government has implemented a bold initiative by raising taxes and cutting the nation’s costly subsidy program. Economists estimate al-Sisi’s austerity measures will reduce the budget deficit by 2.5 percent of GDP.

Thus far al-Sisi’s economic reforms seem to be paying dividends, having received a valuable endorsement from the IMF. According to the IMF, confidence in the economy had been reinvigorated, with GDP growth expected to reach a modest 3.8 percent.

However, an improved fiscal scorecard alone will not mend Egypt’s economic ills.The IMF’s validation of Egypt’s economic policies will go a long way in drawing international investment to the Egyptian market, a vital component of Egypt’s long-term economic recovery.

Egypt in search of foreign direct investment

Egypt’s long-term prosperity requires diversified foreign investment. Although Egypt has benefitted from roughly USD $12 billion in assistance from GCC states, such reliance has come at a high cost to Egypt’s regional independence. Riyadh, rather than Cairo began to dictate Egypt’s foreign policy, a rather untenable position for President al-Sisi.

Egypt, therefore, has set out to aggressively court foreign investment through a series of high-profile infrastructure projects. Egypt’s lofty plans include the Suez Canal Axis Development project, a high-speed rail network, as well as proposals to construct much-needed power stations.

In addition to drawing international investors, the construction of such massive projects represents a central pillar of al-Sisi’s economic recovery plan. According to government estimates, the Suez Canal expansion, along with other megaprojects will employ millions of Egyptians.

China a keen partner

During recent high-level meetings between Chinese and Egyptian officials, including direct talks with President al-Sisi, Beijing expressed interest in investing significant capital in Egypt.

China, unlike the Gulf Cooperation Council and the United States, provides capital devoid of any political or diplomatic conditions. As such, China has begun to represent an attractive alternative to Cairo’s traditional donors.

A lack of Western confidence in the Egyptian economy presents China with unfettered access to a consumer market of 85 million people. At present, China considers Egypt to be the third most attractive economy for investment in the Middle East North Africa region after Saudi Arabia and the UAE.

From an economic perspective, working with President al-Sisi’s business oriented military government provides China with a very attractive partnership.

Furthermore, gaining a foothold in Egypt as well as the entire Middle East and North Africa region (MENA) may prove to be of vital importance to China’s long-term prospects. A strong presence in the MENA region will strengthen Beijing’s Maritime New Silk Road strategy, and secure both access as well as the smooth transit of energy resources to China.

Lastly, as China’s economy and consumer spending slows, access to Egypt’s population of 85 million may provide a new outlet for cheap consumer goods.

Egypt’s stability is vital to China’s regional interests

China has also a strategic interest propping up the Egyptian economy. Strengthening Egypt’s economy is the linchpin of this region’s future stability. Given the circumstances besieging Syria, Libya, Yemen, Sudan, and South Sudan, Egypt’s military government represents for China a veritable stalwart of stability in an otherwise chaotic region.

As such, should the Egyptian economy collapse, the nation would be plunged into a state of violent chaos and disarray, and subsequently, China’s exposure to risk locally and throughout the MENA region would be greatly amplified. With the MENA region awash in arms and Islamist fighters, even the slightest erosion in Egypt’s security landscape could exacerbate an already volatile region.

Given the overall instability in the region, any bilateral cooperation outside the economic sphere would help build trust and cement Sino-Egyptian relations moving forward.

Therefore, in addition to economic collaboration, China and Egypt have discussed cooperation vis-à-vis counterterrorism, nuclear non-proliferation, border control management, human trafficking, development of secure and effective systems of transportation corridors, and the combating of illicit drugs.

Despite opportunity, China must proceed with caution

Despite the myriad of opportunities present in Egypt, China must proceed with extreme caution. Egypt’s economic recovery is far from guaranteed.

The much lauded subsidy cuts were devoid of any social safety nets to protect Egypt’s poorest and most vulnerable citizens. Although the initial rounds of cuts did not result in popular unrest, there are no guarantees that Egyptians will accept additional cuts in the absence of real improvement in the economy and living standards.

President al-Sisi’s megaprojects are also fraught with concerns. Given that the military will be predominantly providing oversight on these massive infrastructure development programs, transparency is expected to be illusive. Billions of dollars may be spent with little or no public accountability. Furthermore, the merits of such projects, namely the Suez Canal expansion, have already been brought into question.

Lastly Egypt must stabilize its deteriorating security landscape. The al-Sisi government will find maintaining security to be increasingly difficult resulting from Islamist militant safe havens just across the border in Libya, a dangerous, indigenous Muslim Brotherhood undercurrent, and an uptick in attacks against Egyptian police and military in the Sinai.

To date, al-Sisi has taken bold moves to achieve his objectives. While Egypt’s military government is capable of suppressing both militants and dissidents in the short and medium-term, failure to sufficiently bolster the economy will likely cause the al-Sisi regime to lose credibility amongst the people. Likewise, a failure to guarantee security will make President al-Sisi’s economic vision for Egypt an all but impossible task.

 

First appeared in Global Risk Insights.

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