Egypt's Yen for Cash

        Since 1979, following the Camp David Accords, Egypt’s ancien regime has positioned itself as a staunch ally of the United States and the West. In the subsequent 30+ years, this state of affairs has remained unchanged. Each year Egypt received over $1 billion in American foreign aid while the United States retained an unwavering and unquestioning ally in a tumultuous region of the world. Until 2011 and the Egyptian Revolution of 25 January, the strength of this relationship seemed unbreakable. However, in the climate of the Arab Spring, blossoming democracies, and uncertain economies, Egypt now finds itself in a position to reshape the geo-political landscape of the Middle East and to pick it’s foreign relations to maximize benefit to herself.

        The United States can no longer count on being the de-facto benefactor of Egypt. While the long-established US/Egyptian relationship is not in danger of disappearing in the near future, there are other sponsors roaming the jungle of global realpolitik who may be eager and willing to ply an economically distressed Egypt with monetary and military aid to foment a future relationship. Egypt’s President Morsi has stated that he seeks to foster balanced diplomatic ties with countries long ignored by his predecessor (see “Egypt’s President…”). His first official visit outside of the region was to China rather than the United States, followed by a trip to Iran to participate in the Summit of Non-Aligned Countries, which the US had asked other countries to boycott. Morsi has also announced an upcoming trip to Brazil, one of the BRIC countries. Clearly, Egypt seems to be evolving  a more independent foreign policy (see “Egypt’s President…”), and China may aspire to be Egypt’s future sponsor for a number of reasons. This is clearly a potential threat to US interests in the region. China has become a global super power competitor to America. They hold over a trillion dollars of US debt and their ongoing purchases of US treasury bills underpin the US economy. The currency regime between China and the United States is important to the US standard of living because American consumers are able to purchase Chinese goods for cheap prices.

       

        Economically, Egypt’s 85 million plus population is an attractive market for China's export-oriented economy. Chinese companies are interested in establishing affiliated companies in Egypt to export to other Arab, African and European markets, which would afford Chinese companies tax exemptions and other preferential treatment (see “FM Holds…”). Additionally, Egypt’s electrical distribution network is inter-connected to a number of other nations, which would allow China to establish a strategic position through joint Chinese-Egyptian ventures in the field of electrical distribution and the emergent field of solar powered electricity generation (see “FM Holds…”). The Nile River represents billions of dollars in energy output which offers China opportunities in the form of dam and hydroelectric power construction projects. Most are in Sudan and Ethiopia but all affect the flow of the Nile River through Egypt. Creating a strong bond with Egypt will be helpful in protecting Chinese interests in the most populous country of the Arab world which will help protect Chinese interests when inevitable disputes among Nile Basin countries over Nile water sharing arise in the future.

        Strategically, a Chinese/Egyptian relationship would act as a bulwark against the expanding military presence of the West and America in the region. Saudi Arabia, Bahrain, the UAE, Jordan and other countries in the Middle East are allies of the United States. Egypt could be a powerful voice sympathetic to Chinese interests in the region. Further, a Chinese sponsored Egypt would be a counter to the presence of NATO in Libya and would further reinforce the already strong Chinese presence in Africa.

       

        Morsi seems open to soliciting sponsorship from China and perhaps Russia, driven by economic necessity. Even before the onset of the Egyptian Revolution, the economy of Egypt was in recession, and has now been crippled. Reforms are desperately needed. The high rate of unemployment, one of the factors that triggered the onset of the Egyptian Revolution, continues to grow. By official government estimates the unemployment rate is above 12% and unofficial estimates put the unemployment rate at much higher levels (see “Egypt’s unemployment…”). Egyptian tourism, a $12 billion a year industry in 2010 was down 30% in the wake of the Egyptian Revolution and may suffer further declines in European tourism after the election of an Islamist president. Foreign investment has declined. Egypt needs over $40 billion in investment to raise the growth rate from 4% to 5% in 2012 (see “PM: Egypt needs…”), 1.8% off from the 5.8% rate in 2010 (see “Egypt GDP...”). Continued rolling electrical blackouts across Egypt are inciting protests against the new government (see Cunningham, Erin), along with double-digit food price inflation (another contributing factor in the Egyptian Revolution, see “Food Price Watch”) and an overall lack of potable water further contribute to Egypt’s economic and social woes.

        Morsi faces crises on many fronts: economic, political, and international. Morsi must play all sides of the fence or risk losing political support at home. He has accepted multiple aid packages from Saudi Arabia (see “Saudia Arabia Approves…”) despite historical animosity between the two countries. While in China, a "frenemy" of the US, Morsi secured $200 million dollars in credit for the National Bank of Egypt, numerous agreements in trade and agriculture (see Bodeen, Christopher), along with a lifting of a Chinese travel ban to Egypt (see “Chinese Ban…”) to stimulate tourism. At the same time, the US pledged to forgive $1 billion dollars in Egyptian debt as well as promising $375 million in financing and loan guarantees to support American companies setting up shop in Egypt as well as backing “Egyptian Democracy”. Morsi also has parleyed with the IMF to receive a $4.8 billion dollar loan (see “IMF requires…”) notwithstanding local protests. All of these actions suggest that Egypt will broaden its circle of diplomatic and economic alliances, while seeking to re-adjust its long-standing alliance with the US.

English Sources:

Bodeen, Christopher. (August 28, 2012). “China, Wary of Arab Spring, Hosts Egypt’s Morsi.” ABC News. Retrieved September 3, 2012, from: http://abcnews.go.com/International/wireStory/china-wary-arab-spring-hosts-egypts-morsi-17092516#.UEg_L3hgP19

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Myers, Steven. (September 3, 2012). “To Back Democracy, U.S. Prepares to Cut $1 Billion from Egypt’s Debt.” The New York Times. Retrieved September 3, 2012, from: http://www.nytimes.com/2012/09/04/world/middleeast/us-prepares-economic-aid-to-bolster-democracy-in-egypt.html?pagewanted=all

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Amer, Hala. (August 23, 2012). “IMF requires Fundamental Structural Reform Program to lend to Egypt.” Al-Hayat. Retrieved September 4, 2012, from: http://alhayat.com/Details/428442

“Chinese Ban on Traveling to Egypt Lifted.” Al-Arabiya. (September 3, 2012). Retrieved September 4, 2012, from: http://www.alarabiya.net/articles/2012/09/03/235818.html

“Egypt…Foreign Activity and an Ambiguous Political Scene.” The Gulf. (August 31, 2012). Retrieved September 4, 2012, from: http://www.alkhaleej.ae/portal/4ab9fb0b-6f80-4a67-a15e-cd8284d1f89e.aspx

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Salman, Talal. “Morsi in Peking and Tehran: Egypt – The Revolution and it’s Anticipated Role.” The Ambassador. (n.d.). Retrieved September 3, 2012, from: http://www.assafir.com/Article.aspx?EditionId=2241&ChannelId=53754&ArticleId=2642&Author=%D8%B7%D9%84%D8%A7%D9%84