Regime faces an uncertain transition

Before President Hosni Mubarak stepped on to the podium at the ruling National Democratic Party conference last month, delegates were treated to a short video clip showing successive outbursts of Middle Eastern violence.

The footage was clearly designed to enhance appreciation of Mr Mubarak, the man who has ruled the Arab world’s most populous country for the past 28 years and maintained its stability, despite the frequent eruptions of mayhem in its neighbourhood.

This year had started with Israel’s Gaza offensive, during which the president had faced down pressure from regional rivals such as Syria and Qatar and refused to open up Egypt’s borders with the Strip, fearing this would drag the country directly into the Palestinian-Israeli conflict.

To the surprise of the NDP and the government, Egypt this year has also managed to weather the global financial crisis with limited damage to the economy, which grew at 4.7 per cent by the end of the June fiscal year, thanks to a series of recent economic reforms.

But with US pressure for political reform dramatically eased under the Obama administration, the regime has continued to tighten its grip on politics, harassing opponents and ensuring that no challenges emerge.

Over the past year, it has maintained steady pressure on the banned Muslim Brotherhood, the country’s main opposition group, locking up many of its organisers and widening divisions within top ranks.

Crucially, however, the 81-year-old Mr Mubarak’s image may also have been in need of an urgent boost this autumn.

In May, he had disappeared from public view for two weeks following the abrupt death of his 12-year-old grandson, accelerating speculation that he may be preparing to bow out of political life. It was at that time that the debate over an inherited succession reached fever pitch.

Long-standing suspicions that Mr Mubarak’s son Gamal, a former investment banker turned leader of young technocrats in the ruling party, would succeed the president, suddenly took on an air of inevitability, generating heated debate and provoking anti-Gamal campaigns in the media and on Facebook as well as within opposition circles.

Even if Mubarak pere decides to stand in the next presidential poll in 2011 – and officials and diplomats are betting that he will stay on and then start preparing the succession – the president’s age and the two upcoming elections (a parliamentary vote is scheduled for next year) have left many Egyptians with the sense that the country is on the threshold of change.

For some, the succession brings the tantalising prospect of an end to decades of autocratic rule.

“Hosni Mubarak will be the last president who controls everything in Egypt,” says Emad Gad, a political analyst at the al-Ahram Centre for Political and Strategic Studies. “After Mubarak there will be real [political] competition.”

Other Egyptian analysts, however, are less optimistic. They argue that the transition will carry as much risk as opportunity, if suspected plans to replace the elderly Mubarak with Gamal are followed through.

“The next two years will be decisive for the future of Egypt,” says Hassan Nafea, a professor of politics at Cairo University, a co-ordinator of an anti-Gamal campaign.

“But if we have had Mubarak ruling the country for almost 30 years and Gamal will rule the same system, it means we will be run by the same despotic regime for another 40 years.”

Whether Gamal will ever reach the presidency is far from guaranteed. Analysts believe his succession would have to be engineered while Mr Mubarak is in power or it could face stiff resistance from within conservative NDP ranks or from the military establishment that remains the backbone of the regime.

Although the young man’s image is being re-crafted by his NDP supporters, Gamal has neither popular support nor a background in the army. He is credited instead with the economic reforms that have given him a support base within the business community but not much beyond it.

He is indeed believed to have been instrumental in convincing the president to appoint the cabinet of economic reformers who introduced the changes that have kick started the economy since 2004, producing yearly growth rates of 7 per cent in the period 2006-2008. Foreign direct investment during that time reached $38bn and the business environment has radically improved. Officials say that, had it not been for the reforms, the impact of the global crisis and the wave of food price inflation which preceded it would have been disastrous.

The government’s economic achievements were showcased at the NDP conference, with the party and its policy secretariat headed by the younger Mr Mubarak sharing the credit.

The problem for the regime – and for Gamal – is that, even if the figures tell a good story, it is still not one that convinces the majority of Egyptians.

Forty per cent of them still live below or just above the poverty line, and the economy remains shackled by a huge bureaucracy, massive fuel and food subsidies and a poor education system.

True, life has improved for some parts of the population, as evidenced by the gated communities on the outskirts of Cairo, the rising sales of white goods, cars and mobile phones.

But the reforms have not had sufficient time to trickle down.

World Bank figures show that overall poverty levels declined between 2005 and 2008 but the number of extreme poor increased, especially in rural Upper Egypt.

Moreover, the lower middle income bracket of the population benefited less than others, explaining the frustrations that erupted in a wave of localised strikes that continues to this day.

“The trickledown effect [is not] an automatic process,” says Mahmoud Mohieddin, the investment minister.

“You need to invest in it, you need to invest in infrastructure, education, health and access to markets in order to get the miracle of growth helping people get out from their poverty. That is basically what we are trying to do now.”

Although the economic crisis has not damaged the economy as much as had been feared – receipts from the Suez Canal and from remittances dipped but the banks were not exposed to toxic assets and tourism and the property market held up – it has made the task of improving income distribution more difficult.

To reduce the impact on the economy, the government has introduced an infrastructure stimulus package worth $2.7bn in the last fiscal year. There is another to the value of $3.2bn this year.

But some of the gains of recent years, in terms of employment and poverty alleviation, have been undermined by the slower growth rate since the onset of the crisis – the World Bank projects that unemployment will rise to 10 per cent during 2009-2010, from 8.9 per cent in fiscal year 2008. Egypt needs to generate 650,000 jobs a year, and there is still a huge backlog of unemployed.

Ministers, meanwhile, acknowledge that some of the necessary reforms, including changes in the expensive subsidies system, will be delayed by two years.

While the political class is buzzing with anticipation and speculation about the succession, economists worry that the upcoming elections and the political uncertainty could make the pursuit of reforms all the more difficult.

As Beltone Financial, the investment bank, says in a recent report: “The Egyptian economy is at a crossroads, having to deal with higher fiscal and external deficits and the spectre of inflation when parliamentary and presidential elections in 2010 and 2011 could reduce the government’s willingness to proceed with difficult and sensitive economic reforms.”