Egypt's five concentrations of risk

Post-revolution Egypt faces five deadly-serious challenges: declining economic growth; depletion of the middle class; flagging democratic transformation; political polarisation; and unprecedented regional change

First, the slow but steady reduction in foreign reserves and the pressures it is putting on the country's monetary situation are threatening Egypt's economic foundations. Short term management of the reserves becomes very tricky; inflation on basic goods start to rise; and various corresponding social challenges materialize. But the key risk here lies in getting entangled in stop-gap measures that are very detached from an environment of economic growth.
The measures to avert financial Armageddon could also become a vicious cycle that increases the risk of stagflation. In this scenario, Egypt would lose the results of the financial adjustment and growth measures it had taken in the period from the early 1990s to the early 2000s. And the sacrifices that the Egyptian society had endured in that period, and especially in the first half of the 90s, would go to vain.
The loss of growth drivers, even without the costs entailed in a stagflation, would shrink the market, erode competitiveness, and drive away any investment, local or international. The first casualty would be value-generating jobs, the ones that nurture talent, enhance knowledge dissemination, and create wealth. And if such situation continues, the entire job market, including low-end jobs and the grey economy, would suffer. These factors clearly worsen youth unemployment, the key socioeconomic ill facing the country; the working environment of small and medium sized enterprises; the availability of capital; and all the industrial and services value chains that evolve in growing economies. The ensuing risk here would be the impact on the middle class. This vicious cycle would certainly weaken the economic underpinnings upon which the Egyptian middle class have been growing in the past two decades. The deeper and longer the economic stagnation, the larger the fall of some segments from the middle class.
And this would give rise to the third risk: a serious weakening of the evolution towards genuine democracy. Amidst deteriorating economic conditions and increasingly difficult social circumstances, the coming of age of the 40-million Egyptians under 30-years old will become a tough experience – for them and for their society. Instead of the potential that such young and huge demographic segment can generate, big swaths of them could become angry and bent on change through any means. With poor education and vanishing economic opportunities, the anger could become explosive. Such milieu could bring about change, but that would be neither smooth, nor conducive to plurality, liberalism, or tolerance.
Control is the fourth risk. Since Mohamed Ali pasha had given rise to the process of creating modern Egypt in the first decade of the nineteenth century and until the first decade of the twenty first century, decision making in Egypt has been highly concentrated at the centre: the upper echelons of power in Cairo. The current political polarisation and the haphazard transition Egypt is witnessing are acutely weakening the solidity of key state institutions, of the normal interactions between these institutions, of the notion of rule of law, and of command over the country. This dilution of centralisation, in theory, could benefit the country: the more decentralised decision making is, the more empowered the different regions, the less the red tape, and the more the representation of various communities. But amidst highly unstable social, economic, and political circumstances, the weakening of authority and the gradual undermining of key state institutions is perilous.
The fifth risk is for the region. The Middle East is currently undergoing the largest socio-political change it has witnessed in over half a century. The rise of political Islam, the acute polarisation over social frames of reference, and the immense fluidity we are seeing in North Arica, the eastern Mediterranean, and that inevitably will reach the Gulf, are symptoms – and results – of the social pressures that accompany the generation change going on across the entire Arab world (in which over 190million people are under 30 years old). These tensions are the products of the lost opportunities – in education, research and development, exposure to the world, gender equality, and even in social refinement – in five or six decades. During such difficult transitions, nations benefit from the maturity of its traditional centres of culture and art: its reservoirs of civilisation. In the Arab world, Egypt, with the heritage of its liberal age, should have been that reservoir. Instead, it is now an economic, and potentially social, drag on the region. If Egypt loses this decade, the entire Arab world would pay a heavy cost.
Mitigating these risks is a function of avoiding the economic vicious cycle, reigniting growth, and resuscitating the potential of a huge segment of young people. Paying the price today of serious – and difficult – reforms, and entrenching the values of plurality and tolerate (despite populist tendencies) is much better for the Egyptian society than letting these concentrations of risks fester.
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