Egypt’s economy stabilises, but poverty challenges persist

Egypt found itself back on the international front pages in the second half of this year. The country played host to the Sharm el-Sheikh conference in October when US President Donald Trump rallied global and regional powers alike behind his ceasefire plan for the Gaza Strip. Shortly after, in November, Cairo invited world leaders to attend the spectacular opening of the new Grand Egyptian Museum next to the pyramids.

Amid these eye-catching events, other domestic developments have received less attention. Most notable were Egypt’s parliamentary elections, with the first round held in November, and runoffs planned for early December.

The elections have been dominated by a coalition of pro-government parties running unopposed for the party list seats, which are half of the parliamentary seats being voted for. Individual candidates can run for the other half of the seats in contention, but those seats are difficult to win for candidates without the necessary financial resources and connections.

Critics, therefore, believe that the race is essentially only between loyalists to President Abdel Fattah el-Sisi, with a group of Egyptian human rights groups saying that the elections had occurred “under chronic and severe restrictions on meaningful political participation”.

With that context in mind, the elections have not attracted a groundswell of attention from Egyptians, continuing a pattern since el-Sisi took power in the country more than a decade ago, after a coup against Egypt’s first democratically elected president, Mohammed Morsi.

“They are even less important than under [former President Hosni] Mubarak, it is not the talk of the day,” said a businessman in the textile industry, who did not wish to give their full name for fear of reprisals. “There are fewer banners and posters than during previous elections.”

Capital injections

In the shadow of Israel’s genocidal war on Gaza, it is often forgotten that less than two years ago, Egypt experienced the worst economic crisis seen under el-Sisi. Billions of dollars worth of capital injections from the International Monetary Fund (IMF), the World Bank and the European  Union, and massive investment pledges from the UAE in early 2024 prevented an economic crisis in Egypt.

Leading to the question, how is Egypt’s economy faring now? On paper, the picture looks promising. Recently, Egypt’s credit rating was upgraded, GDP growth is increasing, skyrocketing inflation rates that battered the population for years have cooled down, and investment from the Gulf continues. For example, Qatar is planning to develop a prime coastal strip near el-Alamein on Egypt’s Mediterranean coast, not far from a similar UAE-funded project now under construction.

Earlier this year, the IMF completed its fourth review of Egypt’s economic reforms as part of conditions attached to its loan, and distributed a further $1.2bn – part of a loan worth $8bn in total, of which Egypt has now withdrawn $3.2bn.

The IMF continues to voice concern about state and military control in the economy – issues that have been on the table continuously under el-Sisi’s rule – but the overall message has been that Egypt is performing as desired. Between the lines, one can read that el-Sisi’s Egypt, especially as the precious peace agreement between Egypt and Israel has held steady amid Israel’s war in Gaza, is simply too big to fail.

Dollars available

The capital injections have had their impact on the ground. There are dollars in the banks and after a major devaluation in 2024, the Egyptian pound is relatively stable. It serves the business community well.

“Our exports rise every quarter,” said a textile company owner. “There are many Turkish textile companies opening in Egypt, drawn by our cheap labour costs.”

That is the intended effect of the devaluation: translated into foreign currency, labour costs decrease, making Egypt an attractive destination to move production that depends on low-skilled labour.

While Turkish companies are a new competitor to his business, the company owner sees the benefit for Egyptian workers. “I had to raise salaries to keep up with what Turkish companies offer, I can see that has a positive effect on people,” he said.

That said, when measured in foreign currency, salaries are still lower than before the 2024 devaluation.

“For the past year or two, exports were ridiculously cheap [due to low labour costs]. We see that advantage slowly fading now. Salaries will get better every year.”

Mohamed Usama, an engineer in a facility manufacturing steel products, has also seen conditions improve. His employer relies on the import of raw materials and export of higher-value products.

“The stable exchange rate made a huge difference,” Usama said. “It made imports and exports reliable. There are no more problems with wiring money; it is predictable when shipments come in. There are dollars available.”

“The waiting time for the arrival of an order of raw materials is now one month instead of three to six,” he added.

That predictability has allowed factories to hire again, according to Usama, even if he pointed out that many contracts were still temporary, leaving workers cautious.

Osama Diab, a Egyptian political economist at the Belgium university KU Leuven, is sceptical that the loans and investment deals have fixed Egypt’s economy.  “These mainly treat the symptoms,” he wrote in an email. “I don’t believe that any of the structural issues are resolved. The economy is still dependent on offering high interest rates to generate hard currency, and there are still massive current account imbalances.”

And while business sentiment is generally positive, hardship for many Egyptians appears far from over.

One economic parameter, non-oil private sector activity, has remained in contraction for most of the past five years. One culprit is low domestic consumer demand. That is also something the textile company owner has noticed.

“Purchasing power is not strong; it has not improved yet,” the textile company owner said. “Customers complain about not having money. Not only in textile, but in many sectors.”

More improvements needed

Diab explained that money from international institutions and investments is primarily being used to repay debts, and not on income or job-generating activities. “That means the vast majority of citizens will not feel any improvement,” he said.

“The government’s ability to honour its increasing debt obligation runs in contradiction with its ability to fulfil its social obligations,” according to Diab.

While the opening of the Grand Museum was surrounded by promises of increased tourism revenues coming in, people were hit with another fuel price increase in November. The price of electricity and cooking gas are set to rise, as well, early next year.

That means that even with the improved wages on offer in some sectors, the general sentiment is that they still need to rise further.

In fact, last year Egypt introduced a new labour law that decreased the mandatory annual raise for workers, and excluded a portion of the workforce from guaranteed annual raises all together. The law also allowed employers to use temporary contracts at will.

The government presented the law as a positive step for Egypt – for instance, it increases paid maternity leave, modernising relations between employer and employee. “The new law is simple, clear, and easy to apply. It provides contractual flexibility,” said Minister of Labour Mohamed Gobran after the law came into effect in September. “The new law is highly advantageous for employers. It simplifies many aspects of workforce management.”

Mahmoud, a farmer in his 40s from a village in Egypt’s Nile Delta, north of Cairo, is typical of those who are still struggling despite the economic shots. He owns a small plot of land that provides most of the income for his family of six, and takes up household service jobs in addition.

Rural areas in the Nile Delta, and especially Upper Egypt, have been hit hardest with high poverty rates in the past years, driving people to move away for work.

“The museum is good for Egypt, but mainly for tourism, for hotels, not for all Egyptians,” he said. ‘The farmers and others in the countryside are just trying to get by with the expensive prices. They wouldn’t abandon their whole lives and go work in hotels in Cairo. What would a farmer go to do in tourism anyway?’

Mahmoud complained that subsidies – for instance, those on fuel and food – have been removed as part of the IMF-induced reforms, making life more expensive.

That leads to often heard criticism of IMF conditions, including that, in the pursuit of free market economics, it is the poor that suffer, even if the general business climate improves.

“In Cairo, the museum will generate income and new business activity, but that income will never reach us here,” Mahmoud said. “We are looking for subsidies, but nothing is subsidised any more.”