4 challenges facing Egypt’s new president Sisi

4 challenges facing Egypt’s new president Sisi

Egypt’s newly elected President, Abdel Fattah al-Sisi, inherits a nation embattled by years of turmoil and instability. A bleak economic situation and continued crackdown on opposition and militant attacks are likely to define his time in office.

Following Mubarak, Morsi, and military rule, the Republic of Egypt has once again redefined its political landscape with the election of Abdel Fattah al-Sisi as President. Sisi becomes the third leader of the embattled nation in just three years, effectively reversing the 2011 revolution that overthrew longtime ruler Hosni Mubarak. A former Mubarak-era military chief, Sisi’s ascent has prompted widespread accusations that the new leader is simply a product of the old regime.

But the challenges facing the new President stretch far beyond opposition protests and accusations. Sisi inherits a state battered by political division, and an economy that has suffered from years of turmoil and bloodshed. Here are four issues that are sure to define Sisi’s time in office:

1. An economy in disarray

Three years of instability have taken their toll on Egypt’s economy, and the nation has struggled to tackle record-high unemployment and secure loans necessary for investment and reform. Egypt has seen its budget deficit almost double to 14 percent over the last four years, as spending on petroleum subsidies cuts into state finances. With the largest population in the Middle East, Sisi hopes aid from Gulf allies can help provide some financial relief.

Gulf states, which strongly supported the removal of Morsi and the Muslim Brotherhood from power, have showered Egypt with billions of dollars in aid over the past year. Saudi Arabia, the United Arab Emirates, and Kuwait have extended Egypt a $15 billion lifeline in cash and petroleum products to help the nation avoid economic collapse.

But Egypt’s allies in the Gulf are looking for accountability as well. The UAE, with Sisi’s blessing, has hired the Western consulting firm PricewaterhouseCoopers to draw up plans for reshaping the Egyptian economy. Currently on the table are issues such as sector privatization, energy subsidy reform, and infrastructural investments.

Potential reforms could help Egypt secure a $4.8 billion IMF loan that has been in limbo since Mubarak’s ouster three years ago. While Sisi’s cooperation with allies and consultants is a positive sign, his vague rhetoric regarding state finances creates skepticism that the new leader is truly ready to make tough reforms.

2. An ongoing energy crisis

Egypt has one of the Middle East’s largest natural gas reserves, yet has been unable to meet its monthly export commitments. Energy giants BG group and Gas Natural Fenosa have invested heavily in gasfields and production plants off Egypt’s Mediterranean coast but have suffered losses as Egypt taps most of its gas for domestic use.

Domestic energy demand has surged due to heavy subsidies on petroleum products, allowing residential and industrial consumers to purchase gas and power facilities far below market cost. Egypt spent over 20 percent of total government outlays on subsidies last year, draining the state of funds it needs to invest in public works and damaging its relationships with export partners.

Egypt’s lack of reliability tempers enthusiasm for further investment in its energy sector. Foreign energy firms recently shifted their East Mediterranean interest to Israel, which is rapidly developing its offshore production capabilities. To avoid a continuing crisis, Sisi will have to reform the state’s subsidy regime and provide domestic consumers and businesses with incentives to be less wasteful.

3. Lack of foreign direct investment and tourism

Foreign direct investment in Egyptian businesses, infrastructure, and energy took a large hit after the 2011 revolution, draining the state of foreign currency and reserves. Foreign reserves allow countries to pay off international debt obligations, or influence their domestic exchange rate. According to the World Bank, Egypt’s foreign reserves tumbled from $37 billion in 2010 to just $17 billion in 2014.

Revenue from tourism has also taken a hit in recent years. Once a premiere destination for Western and Asian tourists alike, security concerns and continued instability have decreased Egyptian tourism by 43 percent over the past year.

Decreased tourism does not just hurt state revenue, however. Millions of Egyptians across the nation depend on summer visitors for work and income. Unless Sisi and his government can reassure investors and tourists of fiscal and physical safety, foreign investment and tourism will likely remain a drag on the economy.

4. Opposition and militant attacks

Despite securing close to 97 percent of the vote, a lower than expected turnout fell short of giving Sisi a mandate to ignore opposition Islamist voices that defined the previous administration. The state has continued its crackdown on dissent, however, sentencing hundreds of Muslim Brotherhood members to death and arresting thousands of others.

Although Sisi has demonstrated little tolerance for political Islam, he may need support from more conservative parties to combat increased militant attacks on security forces, energy facilities, and public spaces. Militants have dramatically stepped up attacks since Morsi’s ouster last year, focusing their attacks on gas pipelines and security headquarters in Egypt’s Sinai Peninsula.

Fortunately, one of Egypt’s most conservative Salafi parties, known as the Islamic Nour Party, has voiced interest in joining the new government to“help Sisi in his rule.” Though the Nour Party likely has its own motives for reconciliation, working with the opposition would provide Sisi with a more clear view of the country’s political landscape.

Political risk runs high, however, and whether or not Sisi can convince militants to peacefully lay down their weapons remains to be seen.

About Author

Rami Ayyub

Rami is an analyst with a US Defense and Space firm, where he works in strategic planning and finance for Civil and Defense programs. He holds Bachelor degrees in Finance and Classical Music from the University of Maryland, College Park.