In the months following the revolution generous pledges of economic assistance were made to Egypt but little has so far materialised. Niveen Wahish finds out why Billions of dollars in aid were promised to Egypt, alongside other Arab Spring countries, most prominently Tunisia, to help in their democratic transformation. The funding was promised by Gulf countries, the US as well as the G8. While the initial numbers are staggering, only $500 million actually came through, from Saudi Arabia and Qatar. Magda Kandil, executive director of the Egyptian Centre for Economic Studies, explains that the delay in the disbursement of pledges emanates from the fact that most of the funding promised is in the shape of investments and project finance. That means that the Egyptian side has to come up with projects that need financing, Kandil said, adding that that has been a major weakness so far. She pointed out that in Tunisia, possibly because they had a head start in stabilising their political situation, they were able to put together concrete projects and get started on the process, and as a result, pledges have begun to seep through. Qatar had promised Egypt $10 billion, Saudi Arabia $4 billion, Kuwait $3 billion and the United Arab Emirates a similar amount. The US said it would give Egypt around $2 billion. The G8, within the framework of the Deauville Partnership launched in May 2011, had said some $38 billion will go towards supporting political and economic transformation in Tunisia, Egypt, Jordan and Morocco. The Deauville Partnership was initially launched by G8 member countries but was later broadened to include Kuwait, Qatar, Saudi Arabia, Turkey and the UAE. Speaking earlier this month Prime Minister Kamal El-Ganzouri said that due to the fact that foreign assistance was not forthcoming, the government had to revisit its resources and cut down its spending by around LE20 billion. The government's main problem in the past year has been a gaping budget deficit. Although some officials had said the deficit could widen to around LE180 billion, about 12 per cent of GDP, El-Ganzouri said the government will take austerity measures to keep it within the original target deficit of LE134 billion or 8.6 per cent of GDP. Marc Franco, outgoing ambassador of the European Union delegation in Cairo, explained to Al-Ahram Weekly that the Deauville Partnership pledges are for programme financing that can only be mobilised if there are projects on the table. He said that there already existed, before the revolution, a pipeline of projects that were financed through international financial organisations such as the European Investment Bank and the World Bank. "The Deauville Partnership has made it possible to expand that pipeline by enlarging the available funding, but the process is not different." Franco explained that between the announcement of the funding and the actual disbursement of money, the project's feasibility has to be studied and approved. The addition brought about by Deauville is the fact that the European Bank for Reconstruction and Development (EBRD), which previously operated only in central Europe, will be operating in Egypt as well. That requires a modification of the agreement establishing the institution. Once that is complete by mid-2012, Franco said, EBRD will be operative in Egypt as well. Franco does not believe the economic troubles in the Euro zone will necessarily impact the funding to Arab Spring countries. "The funding is not from government budgets so budgetary austerity will not directly affect lending capacity. These are funds that will be made available through international financial institutions [IFI]," he explained. However, he added that IFI borrow from the capital markets then lend to countries. Their AAA credit rating allows them to borrow at low interest rates. That in turn enables them to lend beneficiary countries at low rates as well. But being part of the international financial system, if interest rates rise on the international capital markets, that is bound to reflect on their lending. Kandil believes that if Egypt had accepted the International Monetary Fund (IMF) loan last year, it would have made a difference in catalysing further support. Egypt is currently negotiating a $3.2 billion loan from the IMF. The decision to accept the loan followed months of reluctance and a prior decision to turn it down. "Turning down the IMF loan reinforced feelings that the government is not focussed on its economic priorities, Kandil said." But Franco understands any delays on the part of the government to come up with new projects. "By default transitional government are meant to keep things afloat, not to shape future direction or present strong proposals that would reorient policy-making." But he believes that with a parliament in place, a democratic decision-making process is beginning to take shape. Another observer who preferred to remain anonymous believes the fact that the G8 and Gulf countries have not delivered much of the needed assistance and budgetary support to Egypt has been disappointing. He said some of that money should have been in the form of grants in support of political transformation. "Isn't Egypt important enough politically to qualify for that type of support?" The observer questioned Uri Dadoush, senior associate at the International Economics Programme of the Carnegie Endowment for International Peace, addressing a seminar on Egypt in June 2011, who said it was quite customary at international summits to announce a "dramatic headline figure". But he criticised that once analysed, the money is predominantly loans or possibly equity injections. "There is very little by way of grants," he said but he also explained that this is because Egypt is a middle income country. "It is way above the threshold of income where countries attract non-concessional aid." However, Dadoush said that although the G8 money is a "manifestation of support" it is "undefined. It is uncoordinated. It is piece meal. And there is no overriding strategy." The source also believes the delay in delivering assistance both within the framework of the Deauville Partnership and from some Gulf countries is because of US political pressure. Relations have been strained between Egypt and the US since a recent crackdown on NGOs which the Egyptian government said had received aid from the US without approval. But officials have attempted to diffuse the tension. Deputy Secretary of State Bill Burns, who was in Cairo recently, had said there is widespread understanding of the importance of Egypt's transition and its economic recovery, not just for Egypt but for the whole region today. Burns said a successful transition in Egypt is deeply in the interests of the United States, and that the US wants to do everything it can to help by continuing its assistance programmes and new initiatives. The US had said the $2 billion of assistance to Egypt will take the form of a debt swap and credit guarantees as well as an enterprise fund to help small and medium enterprises (SMEs) in Egypt. The US wants to make sure Egypt is coming out of this bottleneck, explained Kandil. "They do not want to see money wasted without vision to pacify anger of the street. They do not want to give the money to a country that is divided. And they want to make sure democratic transformation is in place." And the same applies to the Deauville Partnership. The spirit of Deauville is to assist in the change process and support policies that promote freedom, dignity of the people and insuring social justice, said Franco. He asked that if hypothetically the transformation stops and the spirit is different, why would donors be willing to continue? The justification of the initiative, he explained, would no longer be there. That being the case, Kandil recommended that Egypt focus on its priorities: stabilise the situation, help political transformation and align the economy towards the objectives of the revolution, namely job creation and justice in the distribution of income. She says the way to achieve those targets is through SMEs. "Big investments will still refrain from coming to Egypt so the only way to stimulate the economy and provide jobs is by encouraging SMEs and levelling the playing field for them." Egypt's growth rate reached 1.8 per cent in fiscal year 2010/11. The Global Economic Prospects issued by the World Bank this month is optimistic that Egypt's growth rate could reach 3.8 per cent growth rate in the current fiscal year but will drop to 0.7 per cent the next fiscal year.
