With Egyptian economy in the doldrums, how can the country deal with the reduction in foreign aid?
The partial suspension of US military and financial aid to Egypt earlier this month produced a hostile, inflammatory harangue against the US in Egypt. The anger did not stop at rejecting or denouncing the US decision; it went as far as to imply that Egypt needed no US aid in the first place and should do without it. Suggestions came up that Egypt should cancel its peace agreement with Israel altogether, since US aid was stipulated as a guarantor of Egypt’s and Israel’s continued respect of the peace treaty. Other voices called for diversifying the sources of supply of Egypt’s arms, so as not to depend entirely on the US.
The issue raises the question of the extent of Egyptian dependence on foreign aid, specifically that which comes from the US.
The US and the European Union are undoubtedly significant trade partners to Egypt. Commercial exchange between Egypt and the EU exceeds an annual 34 billion Euros and amounts to some 40 per cent of Egypt’s total trade. Egypt has received 1 billion Euros in aid from the EU since 2006, of which 400 million Euros are direct economic aid, and an additional 500 million Euros going towards direct development and development of natural resources.
US commercial aid to Egypt was reduced from USD815 million in 1979, the year the peace treaty with Israel was signed, to the current USD250 million per year. But the major part of US aid is the yearly USD1.3 billion.
Predictably, cutting such aid would cause a number of problems, given that Egypt is currently suffering from a severe economic crisis, and may further complicate the country’s relations with the donors. It would also make it difficult for Egypt to obtain additional funding from international finance institutions such as the IMF and World Bank.
Over the last 18 months Egypt accumulated a USD19 billion finance gap according to government statistics. Foreign aid and loans are considered a primary means by which to help to address the country’s current budget deficit, which has reached 13 per cent, considering the high cost of domestic borrowing and the government’s increased inability to acquire domestic funding.
Saudi Arabia, the United Arab Emirates and Kuwait are playing a significant role in supporting Egypt’s economy in the coming months through aid packages to the tune of several billion dollars.
The strategic expert Assem Dessouqy explained to Watani that the biggest part of US aid to Egypt goes to purchasing arms and military equipment.
In case of commercial aid, Egypt doesn’t get it in cash but in the form of agricultural products that should be purchased from the US alone, meaning that the US is a main beneficiary. But Dr Dessouqy sees that the aid, which was originally granted as a means to enhance peace in the region, is now being exploited to pressure Egypt politically.
As far as EU aid goes, Gamal Bayoumi, Secretary General of the Egyptian European Partnership at the Ministry of International Cooperation, said that European aid is not a grant to Egypt; it is part of the European-Egyptian partnership. Halting it is a form of political penalty.
“It is important to reach the point where Egypt can do without foreign aid which, naturally, comes at a price and carries the implication of intervention in our domestic affairs,” the economic expert Rashad Abdu says. “The only way to be on our own is to improve the security and economy of our country. The USD1.5 billion in total aid we get every year may be compensated for if we manage to bring back tourism to its pre-2011, pre-Arab Spring, level. Back then the income from tourism amounted to an annual USD12.8 billion, meaning that US annual aid can be made up for by the income of a month of high tourism.
In total agreement with Dr Abdu is Hussien Sabbour, Chairman of the Egyptian Businessmen Association, who says that increased production can very well cover the gap of suspended US aid. But then, Mr Sabbour says, this applies to the value of the aid package not to the products acquired. “It applies,” he says, “to the economic aid but not to the military aid which provides Egypt with spare parts of military equipment.” To do without that, he says, we should diversify our military supply sources.
“The US benefits greatly from its aid package to Egypt,” international law expert Nabil Hilmy told Watani, since all purchases and expertise acquired on account of the aid package have to be imported from the US—usually at a value higher than the market price. Does this mean that, should the US cut its aid to Egypt, US suppliers would suffer since they would lose the lucrative business with Egypt? Watani asked. And would US suppliers be then banned from selling to Egypt? “Not at all,” Dr Hilmy says. “There is a very big difference between suspending or cutting aid and severing economic ties—a move that is very serious and was never taken before. As I already said, the US benefits greatly on account of its trade with Egypt, so it would make no sense to curtail it.”
24 October 2013