Egyptian pivot to Russia increases political risk

Egyptian pivot to Russia increases political risk

The February 10 meeting between Egyptian President Abdel Fattah el-Sisi and Russian Federation President Vladimir Putin in Cairo marks the consolidation of the Egyptian pivot towards Russia and away from America.

Results of the talks include plans to conduct future bilateral trade in the Egyptian pound and Russian ruble in order to bypass the presently intermediary US dollar; plans to build a nuclear reactor together; finalizing last year’s 3.5 billion-dollar arms deal; the exemption of Russian tourists from the 25$ visa fee and allowing them to pay for travel packages with the weak ruble instead of the USD; and an “anti-terror” treaty.

I wrote about this pivot away from the US back in November 2013, right when the US had first punished Egypt for its ousting of democratically-elected Mohammed Morsi with the suspension of 300 million USD of military aid.  This was el-Sisi’s first lesson in “the US as coercive creditor”, and he was bound to learn from it as other countries have, such as Turkey and Jordan.

The topics of the talks are far less important than what they signal: the further movement of Egypt away from the somewhat moderating influence of the US and into the sphere of influence of fellow autocrat Vladimir Putin.

Both countries’ motivations are simple: Egypt seeks a creditor that will not use its aid as a coercive tool (who better than the staunch supporter of Syria’s Assad) while Russia seeks to expand its sphere of influence in the Middle East and North Africa (MENA) region by adding another friend to its portfolio in a tumultuous time for Russian power.

El-Sisi has two simple and interdependent short to medium-term goals for his country: to improve its domestic security and economy.

The former is embodied by his undiscerning crackdown on Islamists, both violent and not – The Muslim Brotherhood, Soldiers of Egypt, and State of Sinai are the main armed groups – alongside the heavy-handed suppression of anti-government activists.

The latter is embodied by his desire to secure Egypt’s tourism sector, which makes up 11% of the Egyptian economy and is most affected by the country’s instability, while returning Egypt to a country stable enough to attract foreign investment – although this is likely a secondary priority as the US is surely a better source of foreign investment than Russia.

On the surface, the move towards Russia and away from the US contributes to both objectives.

For one, there is a negligible difference between Russian and American military aid in relation to the threat of domestic political violence, while there is a huge benefit when the provider of that aid cares not how many die in the battle against “terrorism”, the all-encompassing term for challenges to authority in the world of Putin, Assad, and now el-Sisi. Secondly, Russians make up one-third of Egypt’s tourism.

The most important consideration, though, is that el-Sisi can make this move with impunity. American hands are tied. El-Sisi’s enemies are more or less America’s enemies, meaning that the US cannot throw Egypt to the dogs in punishment for insubordination. Egypt may be punished with another reduction in aid, but this will only justify el-Sisi’s move away from his coercive creditor.

In the short term, el-Sisi is in a strong position to negotiate with both the Americans and the Russians, but the long term is another story: if the Russian economy were to fall into a deeper crisis at a time when the Egyptian economy was vulnerable, and a viable opposition to el-Sisi’s administration emerged, who knows what the US would be able to engineer to suit its interests. This could turn out in the end to be a case of trading one dependence for another, and would only end badly for el-Sisi.

Though understandable from a strategic perspective, the shift towards Russia is troublesome for a few reasons. First, other countries will likely follow suit in the future and start conducting trade in national currencies, likely with Russia and China. The potential effects of this on the USD, on which the world economy largely depends, are unknown.

Second, it marks a blow to democracy in the MENA region, as countries will see that the US’ priority is clearly to combat terrorism and not to spread democracy, and leaders will therefore not be coerced into democratic reform by the carrot of US aid or the stick of its withdrawal. Third, it consolidates Egypt’s status as a risky country for foreign investment.

Egypt recently ranked 128th on the World Bank’s Ease of Doing Business Index, a ranking clearly supported by Egypt’s arbitrary jailing of whomever dissents or opposes the government, including the recent threat to jail prominent human rights lawyer Amal Clooney after she and her colleagues at the International Bar Association Human Rights Institute (IBAHRI) revealed the abysmal state of Egypt’s far-from-independent judiciary.

The most salient points of that report were that Egyptian courts “do not always recognize foreign judgments” and “the judicial system can be subject to political influence”, or, in other words, Egypt and its courts are not to be trusted (full report here).

With this recent consolidation of the shift towards Russian autocracy and away from American liberalization, the overarching takeaway for the political risk analyst is that Western businesses and investors should tread very carefully when considering a foray into Egypt.

About Author

Dylan Crimmins

Dylan Crimmins was previously a Junior Research Fellow for the NATO Council of Canada and is a specialist in the macro-economy and political landscape of the Middle East and North Africa.