Talking economics, politics, development and the future of Egypt with Magdy Sobhi

Talking economics, politics, development and the future of Egypt with Magdy Sobhi

CAIRO: Magdy Sobhi, 52, is the Deputy Director and economist at the al-Ahram Center for Political and Strategic Studies, speciailizing in the Egyptian economy and the oil and gas sector in the region, particularly the Gulf States.

In a 25-year career, Sobhi has written for numerous journals and has had work published in many newspapers including the al-Khaleej in the Gulf, as well as publications in Kuwait, Bahrain and here in Egypt.

Bikya Masr: How would you describe the economic relationship between Egypt and the United States since the first Gulf War?

Magdy Sobhi: Without a doubt, the 1990s was a good time – it was the best decade since the Sadat era in terms of stability and friendliness.

That said, the economic ties between the two were actually much more solid under George W. Bush even though he abandoned what Bill Clinton started. It’s only now that trade will decline again due to the economic crisis but one-third of all Egyptian exports still go to the US markets, which is more than ever before.

BM: So what was Clinton’s idea?

MS: It was his initiative to halve the American aid to Egypt towards the end of his presidency that changed everything. This actually came with the blessing of the Egyptian government.

Both Bill Clinton and President Mubarak agreed during the 1990s that it was time to go for investments rather than aid to boost Egypt’s economy – to make it less dependent on America, basically. In return, some kind of free-trade agreement similar to those already in place with Morocco, Bahrain and Jordan was tacitly accepted between the pair. US investments in Egypt would also increase and be more diversified, whilst aid would be halved. This was in 1999.

BM: So, it’s a misconception that the whole economic relationship between the two countries is still based on aid?

MS: Yes. As we all know, American aid to Egypt has always been an issue but today, it is a completely overblown factor – aid from America only accounts for about 1 percent of the Egyptian GDP. It’s just not a huge issue for Egypt any more. The compensation for the reduction in aid has come in the form of rising Egyptian exports to the US.

BM: But you don’t seem too keen on the Bush presidency?

MS: That’s due to his hostile economic policies towards Egypt. When George W. Bush became president, he reviewed economic ties with all authoritarian regimes. So, even though we are now exporting more to the US, the free-trade agreement that Mubarak and Clinton talked about never became reality.

In short, Bush inherited the Clinton initiative, but refused to do anything with Egypt. Bush never went through with it – he betrayed Egypt.

BM: Nothing whatsoever?

MS: Some investments came to Egypt, but they were in the traditional sectors like oil and gas. The Clinton initiative promised investments and job creation in tourism and telecommunications but they never came. Two-thirds of the jobs nowadays still go to oil and gas. And all the while, aid was halved.

BM: Going back to earlier when you mentioned the free trade agreement with Bahrain, Jordan and Morocco – why wasn’t Egypt in it in the first place?

SM: It’s silly to think that Bahrain, Jordan and Morocco have access to the American markets without tariffs imposed on their exports, but not Egypt. You would think that given the closeness of ties with Egypt that they would be a part of it.

I guess the offer came too late during Clinton’s presidency and with Bush in the White House, there was no chance of it taking place – certainly not after 9/11 or the Afghan Wars because relations between Cairo and Washington became very bad afterwards. With the current crisis, they’d be even more reluctant to let Egypt in right now.

Funnily enough, Egypt could have been part of the original free trade agreement back in 1982 when the US signed a trade agreement with Israel and offered the same to Egypt: equity partnership and under unconditional terms. But Egypt refused.

BM: Because it came so soon after Sadat’s assassination?

SM: Partly – Egypt refused because of bad public opinion at the time. Also, Egypt had really poor relations with its Arab neighbors due to the Camp David agreement in 1978 and it wouldn’t have been the right thing to do then.

BM: So, did they try to do anything between then and the Clinton initiative?

SM: Egypt tried again in 1995 but they went down the European Union route: Egypt thought if they could negotiate a free trade agreement with the EU, it would then lead to one with the US.

Traditionally, many Egyptian tycoons regard the EU as a first market for Egyptian exports, but the US as a first country for their goods.

So, some of these tycoons even lobbied the government into postponing the EU negotiations to try with the US first. But in the end, the EU trade agreement was signed in 2001 (and was updated in 2004; Egypt now has bilateral relations with the EU, and exports to the EU was worth €7 billion in 2007, mostly in energy and textiles) – two years after the Clinton initiative, and nothing more happened under Bush. The US showed no interest and argued that they already had countries (Morocco, Bahrain and Jordan) in the region that they had free trade with, and that Egypt could easily have access to them.

BM: And did the 9/11 attacks change anything?

SM: Egypt was, of course, on America’s side after the attacks. But they never sent troops to the front lines to Afghanistan or Iraq – and the two governments just disagreed on many things.

The US even imposed seven economic and political conditions on the Egyptians in order for them to join the free-trade zone, like human rights and political reform. To this date, there’s still no agreement.

BM: So, it is arguable that the US-Egypt economic relationship has very much depended upon who’s in charge – or rather, the kind of person – at the White House?

SM: Absolutely. Usually, the Democrats have traditionally been more sympathetic to the Egyptian cause. George W. Bush was unique though in his hostility. Things might be different under Obama but I’m not too hopeful.

BM: Just before we get to Obama, what about arms deals between the two during the past two decades? Has that, too, changed fundamentally?

SM: Not really. American military aid to Egypt is still the same amount as it was in 1999 – about $1.3 billion. Most of it still goes to training the forces, purchasing military equipments, planes…

BM: But I would imagine the best equipments are kept behind for Israel?

SM: Yes, Egypt doesn’t get the most advanced fighter jets – Israel gets those. But, if you compare the army here with other countries in the region – except for Israel – then it is one of the most advanced in the Middle East. Of course, Egypt tried to develop its own equipments but it never took off.

BM: As for President Obama – you say you’re not too hopeful – why do you think that?

SM: Well, the current economic problems in the US mean the issue of free trade with Egypt is not up for discussion.

There’s now a more conservative approach to any new trade agreements. Look at South Korea – they are a much bigger economy than us and the US still rejected them last year. Also, unemployment is so high in America right now that they would be wary of any new agreements with other countries.

BM: What can be done then? How would you do if you were in charge?

SM: Fundamentally, a new approach is needed. We need more American investments here, to turn Egypt into a hub for exports to the rest of Africa and even Europe.

BM: Because of the tariffs imposed by the EU on US goods?

SM: Precisely. Egypt’s already succeeded in diverting some American goods to the EU, saving them from having to pay EU tariffs. The EU and US argue so much about trade that this is one area that Egypt can act as a bridge between the two due to our historic ties with America and bilateral trade with Europe.

BM: But on the other hand, there’s the Chinese who are investing a lot of money and resources into Egypt and the Suez Economic Zone, how do you see that panning out in the near future?

SM: No doubt that Chinese investments will increase even more in the coming decade: Egyptian components and labor are cheaper whilst Chinese commodities are cheaper than the US. I therefore see it as a competition between these two economic giants. Obama may do better than Bush but these are tough times ahead for everyone due to the recession, and they’re being more cautious than ever.

I personally hope that the US will wake up soon, and realize that it is time for them to win over the hearts and minds of the Egyptian population and businessmen.

Conservative estimates put unemployment rate here at 9 percent, but I think it’s more like 13-14 percent, and any US investments in more diverse sectors would help tremendously.

BM: And that’s regardless of whoever’s in charge of Egypt from 2011?

SM: Whether it’s Mubarak or someone else, things will remain the same: same economic policies, and same relationship with the US. I can’t imagine there’ll be any changes whoever the president is next year.