2019 was a positive economic year for Egypt, especially compared with how poorly the economy performed throughout most of the last decade. Economic growth during the second quarter and first half of the 2019-2020 fiscal year reached 5.6 percent — up from the 5.3 percent recorded the year prior, and 1.8 percent in the immediate wake of the 2011 Arab Spring. But in the first quarter of 2020, Egypt's economy experienced a slowdown, underscoring how macroeconomic growth does not necessarily correspond to economic sentiment among Egyptians. 

Indeed, according to data released by Cairo's statistics agency in August 2019, roughly one-third of the country's population was living in extreme poverty. Wage growth, meanwhile, has continued to slow as inflation persists. And while Egypt’s unemployment rate has technically improved in recent months, it now risks rising again amid the escalating COVID-19 pandemic.

Cairo Fans the Flames 

The IHS Markit Purchasing Managers’ Index (PMI) for Egypt’s non-oil private sector was 47.1 in February — marking the sixth and seventh straight month of contraction due to dropping demand, consumption rates and consumer sentiment. While appearing wise on paper, several government decisions in recent years have exacerbated the country's economic woes. 

• Despite concerns over its impact on citizens, the government has moved steadily forward with economic reforms that help it generate more non-oil revenue. This includes the so-called "sin tax" levied on tobacco products, which was passed in February 2020, raising cigarette prices by as much as 16 percent for cheaper brands.
• Many Egyptians are also still reeling from the austerity measures stipulated in Cairo’s 2016 deal with the International Monetary Fund (IMF). These measures have enabled the government to stop spending as much of its foreign exchange reserves on maintaining the country’s former currency peg to the U.S. dollar. But this has come at the cost of slashing individual purchasing power in recent years.

These are both prime examples of how the al-Sisi administration’s attempts to bolster Egypt’s macroeconomic situation risk ultimately leading to a wellspring of anti-government sentiment, as already struggling Egyptians see cheap daily-use items such as cigarettes increase in price and their purchasing power plummet. 

A New Threat Emerges

As COVID-19 economic impacts evolve, Cairo is now easing the corporate tax burden (particularly in the industrial and tourism sectors) and slashing energy and electricity prices for the industrial sectors. Nonetheless, the loss of tourism receipts and reduced global demand for manufactured products, will only deepen the economic strain on the many Egyptians who work in the country’s manufacturing and tourism sectors, which also contribute approximately 16 percent and 12 percent of Egypt’s GDP, respectively.

As COVID-19 and other external factors, such as the global oil price slump and ongoing global trade wars, threaten Egypt’s economic gains, they will also erode the al-Sisi administration’s ability to continue portraying itself as the undisputed economic and political bastion of stability. These changes will probably be gradual, but the risk is likely to increase under the following conditions:

• The tourism sector remains shuttered well into 2021.
• The government enacts new austerity measures in the coming months according to a pre-COVID-19 reform schedule.
• Global demand for Egyptian exports remains depressed well into 2021. 

This could weaken the al-Sisi administration’s current firm hold on power by prompting increasingly cash-strapped and desperate Egyptians to voice their dissent. Over time, the growing number of retired and current military officers who are entering the private sector will likely accelerate this dynamic as well, by stoking fears among both consumers and foreign investors that the military’s growing role is edging out private-sector competition.