An Economy Shutting Down

EGPEgypt’s economy is slowly shutting down under the MB regime, and continuing on the same path is a luxury that we cannot afford.

What do I mean by an economy “shutting down”? What we are going through is not a regular crisis driven by some global or local problem, like the global financial crisis or the real estate bubble bursting. We have passed that point last year. Today, our economy is slowly “shutting down” with permanent and irreversible damages starting to hit several areas. To use the analogy, we are like a patient suffering from organ failure.

This is not a pessimistic rambling, but rather a call for action, because the current situation is simply not sustainable.

So what does an “economy shutting down” look like? First, On the sectoral side, we can see many sectors severely suffering.

The tourism sector, which used to be 11.3% of the GDP, accounting for more than 19% of our foreign currency revenues; the tourism sector is shutting down. Egypt was recently ranked last among the world’s touristic destinations in terms of safety. Many hotels and resorts that fought for survival over the past two years in hope of a quick rebound are closing or considering closing. No new investments are coming to the sector. If the security situation and political stability are not back within a year, many resorts, hotels and other dependent businesses will shut down, laying off hundreds of thousands of employees and workers.

The manufacturing sector is also suffering, mostly from repeated labor strikes and disputes as well as an unfavorable business environment. Figures of factory closure are growing. Although figures are not officially confirmed, different reports claim that more than 1,200 factories have already closed. Last month I was talking to a young businessman who manages his family business. He told me that he decided to shut down his family factory, lay-off the 350 workers, and enjoy horseback riding instead because “it wasn’t worth it anymore.”

The construction and real estate sector is suffering in some segments. Construction and its supply chain constitute one of the most active and labor intensive industries. Over the past year, most of the infrastructure and large construction projects slowed down due to land disputes, problems in payments, and overall political uncertainty. The only part that is still active (and actually growing) is the informal building on agricultural lands! Abusing the deterioration in the state’s capacity to enforce zoning laws, many are grabbing the opportunity and building on precious agricultural land around Cairo and in the delta. Besides that, there are few if any new contracts for infrastructure or real estate development.

On the services side, many small businesses are suffering because consumers feel unsafe and are less willing to go out as Egyptians were always known to. Food and clothing retailers are suffering from declining sales.

The agriculture sector is facing a different challenge due to fuel shortages. Farmers depend on small tractors for their harvest and the fuel shortages are threatening their ability to harvest their crops on time, especially wheat. This is creating an uncertainty in the wheat supplies for next year.

Second, In addition to the sectoral problems, there are other structural issues.

Investments are drying up, whether local private, government, or FDI. Local private investments have been the main driver for growth over the past few years. Last year, most local capital was hiding and awaiting more clarity in the political situation. The lack of an end game for the political turbulence will keep this capital hiding. Government investments are shrinking as most of the revenues are redirected to maintaining social subsidies, paying debt interest and increasing government employee salaries. Foreign direct investments (FDI) went down from a peak of $11.3 billion in 2009 to less than $0.5 billion in 2012. The overall impact is that the GDP growth went down to ~2%; and is unlikely to grow until investments are back.

One of the reasons for the decline in local investments is the lack of a vision on how to deal with the business class. Most businessmen are now labeled as “feloul”. they are harassed by a government seeking more taxes; MB businessmen seeking to buy their businesses at dirt cheap prices; revolutionary youth accusing them of benefiting from the crony capitalism of the previous regime; workers seeing to extract higher wages; and a deteriorating infrastructure with frequent blackout, fuel shortages and port closures. For many, it is “not worth it anymore.” All of the above accusations are probably true for many of them; however, a country cannot afford to lose its business class. Egypt tried this before during the Nasser era with nationalization of businesses, confiscation of wealth, and kicking out most of the foreigners who constituted a big part of this business class. The results were grim. It takes a country 1-2 generations to re-build a globally networked and professionally trained business class.

In the midst of all of this, the only sector that is growing is the informal sector. Informality is quickly crawling over the little order that we used to have in Egypt. Street vendors are expanding like cancer and blocking the entrances to stores that pay rent. Traffic is blocked everywhere most of the day. Securing one’s assets are becoming a personal or business responsibility, with thefts growing exponentially. Everyone is rushing to buy electric generators to survive expected blackouts during the summer.

*   *    *

 Up till last year, most of our economic problems were “problems of transition” and everyone was waiting for the political transition period to end, hopefully with a more competent regime, to get back to their work, and to higher growth rates. Today, with no end in sight for the current incompetent regime, many of these changes are becoming permanent. It may take several years to reverse them.

In addition to the above, macro-economic problems are prevalent. For example, our foreign debt is growing a scary rate. We already borrowed or are planning to borrow around $21billion (this includes that anticipated World Bank). At this pace, we may double our national debt over the next 6 months (from 34 Billion). Our government budget suffers from a huge deficit of around one third of the budget.

If we end up in a new “equilibrium” point, it is likely to be a miserable one, characterized by social and political tension, worse security, higher unemployment and higher inflation, lower investments. We still do have a window of opportunity to save Egypt and its economy from the slow organ failure, but that window is likely to diminish if we do nothing before the end of the year. More later on how to do so.

To quote the Economist Magazine (in a different context), “hope is not a policy.”

Amin Elmasry.
13 April 2013.

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What is Democracy?

Egypt Polls (AP)This essay is directed to many friends who always use the argument that “voting is democracy” to justify the creation of a different type of tyranny. What is democracy?
Some may think this is theoretical and irrelevant; I believe this is how things work, even if it takes a while.

Any society has diversity. Diversity of religious beliefs and values; income levels (rich and poor); where people live (urban, rural, nomad); etc. With diversity comes conflict: difference in opinion on how to run the country’s social, economic and security interests. Social interests relating to how people practice their lives in public and express their identity; how they marry, eat, dress, or conduct themselves in public; what to say and not to say; who to criticize and how to do so.  Economic interest relating to ownership of property, taxing the rich, supporting the poor, budget priorities (e.g., education vs. security). Basically, how much private money should go to the state, and how should the state spend this money. Security interests relating to keeping the society safe domestically (how harsh should punishments be), and keeping it safe globally: who are our allies and who are our enemies? when to fight them and for what reasons? These are the main differences that societies face.

These decisions are collective decisions, not individual decisions. Why? Because each decision affects “my” life, whether I support it or not, and whether I was consulted or not. Raising taxes affects everyone (the payers and receivers of the money). Going to war affects everyone. Limiting public speech or behavior affects everyone (whether you support it or oppose it). The fact that we all live together means that our collective decisions affects all of us, regardless.

So who has the right and authority to make these decisions on behalf of a whole nation? Governments assume that role. What gives them the legitimacy to make these decisions on my behalf and your behalf? This is the basic concept of legitimacy: a nation accepting the decisions of their government. Where does that legitimacy come from? People either “accept” your legitimacy as a government, or you can force them to accept it.  For any government to be stable, its legitimacy has to be accepted by the vast majority of its citizens, even when they disagree with the government decision. A government can only coerce a tiny percent of a population. No government in history managed to survive over the long run without the acceptance of the majority of its people. Even if they maintain a brutal security device to oppress their people, eventually, they fall. This is becoming a stronger truth in today’s open and global society.

Historically, most rulers gained legitimacy from traditional sources. Fighting a battle against an external enemy that is threatening a nation provides legitimacy. That’s why many dictators love to go to war to strengthen their reign (Saddam is a perfect example). Appeasing specific powerful sectors of the society that help them oppress the rest of the people is another tactic (Alawi’s in syria, Sunni in Saddam’s Iraq). Appealing to religion is another popular tactic (Iran, Saudi Arabia). Every regime has a clear narrative that it uses to maintain its legitimacy in the eyes of the people and gain their acquiescence; and for the remaining rebels, there is the oppressive machine that often goes with any regime.

Modern states moved away from these traditional sources of legitimacy for a simple reason: they are no longer effective in today’s modern world.  A traditional feudal regime or theocracy no longer work once people reach a certain level of education, wealth, and access to information. Democracy offered a viable alternative. It offers regimes a path to gaining legitimacy by getting people’s consent to govern. It is not an idealistic choice, but rather a pragmatic choice. It also gives special interests a legitimate way to influence people’s vote, and defend their interests.

So how does this democracy work?  First: division of power among different institutions. “Power corrupts, and absolute power corrupts absolutely” – that is something we all know. So the answer is creating several institutions, each doing a specific part of “governing” and each checking and balancing the others. This is why we separate the executive from the legislative from the judiciary branches of government. We also want to make sure that the economy is  competitive, and break monopolies. So we divide political and economic powers to avoid too much concentration of power in one hand (person or party).

Second, we create institutions to ensure transparency and accountability: media, watch dogs, civil society rights organizations, etc. People need to know what’s happening, and they need to have specific watch dogs overseeing those in government.

Third, you create a mechanism to choose (and remove) those in government and hold them accountable periodically. This is the elections process. Elections guarantee that whoever is in power can be removed if people desire to do so, and also gives them some legitimacy to act as a representative to the whole nation and make choices on behalf of everyone, including those who oppose them.

Forth, and probably most important, you need to establish the boundaries of what a government can do. If we elect a communist government tomorrow by 51%, can they confiscate all my personal property? If we elect a government from religious group A can they prevent me (religious group B) from practicing my religion? The powers of an elected government is not absolute. They are limited by the “constitution”. The constitution is a basic document that supersedes laws, and decides on the framework for the state. It sets the boundaries for each of the institutions of the state (executive, legislative, judiciary), and identifies the basic rights that they can not breach. This constitution is a pre-condition for a government gaining any type of legitimacy, because it protects the rights of the minority against the majority (actually, of each individual, regardless of who they are). This constitution sets the ”rules of the game” that enables the elections and voting to take place. It is a document that should gain broad support.

What happens if the constitution is set by one side or a political party (which is the case today in Egypt)? This constitution will likely reflect the points of view of that side, and will present a threat to the other side (and their social, economic or security interests). By doing so, it sets the ground for confrontation and escalation of conflict, rather than being a source of stability and comfort for everyone. Constitutions that are single sided are often followed by actions to assert the powers of the winning side, which, in turn, are followed by strong resistance from the other side. Depending on what’s at stake, that resistance may take different levels of vigor or even violence.

Democracy takes place only when these institutions are established: a widely accepted constitution that protects individual rights; independent judiciary; freely elected legislative; strong and competent executive; free media to ensure accountability; and a vibrant civil society. Absent any of these institutions, you can not call a system of government a democracy. The widely accepted name for such regimes is “semi-authoritarian regimes”. These are regimes that maintain some of the democratic practices, but lacks the essence of democracy. Mubarak’s regime was a semi authoritarian regime. The new regime that the Muslim Brothers are trying to establish is likely to end up being  a semi authoritarian regime, if not a clear theocracy.

So what does this tell us about the situation in Egypt today? First, a constitution passing by a slim majority, forcing its will over the rest does not provide legitimacy to a regime. Second, a semi-authoritarian regime like this will not maintain stability or trigger prosperity; but is likely to create more instability and economic turbulence. Third, this is not a stable regime, and is likely to collapse, simply because it lacks legitimacy.

Amin Elmasry.

16 December 2012.

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Now, It’s Time to Deliver!

MB regime now need to face real social and economic demands

On Sunday August 12th, 2012, President Morsi, The Freedom and Justice Party (FJP), and the Muslim Brotherhood (MB) consolidated their control on Egypt’s executive and legislative branches, uncontested, after the sacking of SCAF’s leadership and reversing their constitutional amendments. This ushered the real beginning of their reign over Egypt. Since then, many have assumed that they are on their way to establish long-term control of Egypt, the state. However, I would argue that this is contingent on their ability to perform economically over the next 6-12 months, and avert a broad economic crisis that would challenge their political dominance.

Two Urgent Challenges: The current government is facing numerous social, political and economic challenges; however, two economic areas standout as the most urgent, and potentially, the most disruptive: macro-economy issues, and distributional issues.

On the macro economy: first, there is a dangerously growing balance of payment deficit. We all know about the deteriorating foreign currency reserves. Over 18 months, our foreign currency reserves declined from $36 billion to $15 billion – a $21 billion loss. Some of the $21 billion went to defend the Egyptian pound and maintain its stability; others were a result of the decline in foreign direct investments (FDI) as well as revenues from tourism and exports; and a large chunk (that still needs to be identified) went to capital flight, both from foreign investors, as well as loyalists of the previous regime who transferred their wealth to safe havens in Europe and elsewhere. Today, Egypt has an unsustainable deficit in its balance of payments that can only be offset in the short term with loans and foreign currency support, as the economy regains its stability and growth.

Second, there is the growing budget deficit. Tax income has declined due to the economic slowdown; and the government is under pressure to quickly increase its spending in salaries, subsidies and social services. You can always fill in the short term gap with more debt (or printing money!), but this comes at a heavy price in terms of debt service and higher inflation. Today, it is estimated that around 40% of the government budget goes to subsidies, mostly energy subsidies. When you add the debt service (interest and principal payments) and salaries of government employees, you end up close to three quarters of the government budget, leaving very little space to implement any economic growth policy or to improve social services.

The second area is what I term “the distributional issues”. The government is facing challenges of subsidies, social services, salaries and strikes! Energy subsidies consume a huge part of the government budget, and is growing. Removing the subsidies will result in inflation in transport and food prices. Social services (healthcare, education, municipal services like garbage collection or public transportation) are all in a shameful situation and need urgent reforms, which requires quick investments as well as structural reforms. Government employees are all, rightfully, requesting adjustments to their miserable salaries, and they have discovered the strike tactics and are using them on daily basis. These distributional pressures were kept under the lid by the previous regime using coercive force by the Ministry of Interior and Central Security Forces; however, this security apparatus is much weakened after the revolution, and it is becoming less acceptable to use coercive power against legitimate economic and social demands.

The result of these two urgent economic pressures represents the toughest challenge for the new government. The need to appease the population, especially the government workers and employees; maintain prices and control inflation; trigger growth again by restarting tourism, attracting FDI, and also increasing domestic and regional investments. All of this needs to happens under many constraints that limit their maneuverability space.

As the new MB President and Government attempt to navigate these economic challenges, their maneuverability space is severely constrained by a number of factors: First, their ability to undertake unpopular measures and force them over an angry population is very limited. On the one hand, people are in a rebellious mood and are easily excited to hit the streets; on the other hand, the government’s coercive force is severely downgraded. It is unwise to undertake large unpopular programs without widely socializing them and gaining broad acceptance among the public; however, the government media apparatus that used to help popularize such measures is widely discredited and ineffective. What makes this tougher is that the MB made a choice of not cooperating with other political forces, whether the leftist labor movements or the large business interests (which were closely aligned with the previous regime).

The second limiting factor comes from the domestic political scene. The MB decided (or were pushed to?) do it alone. They formed a narrow MB government rather than going for a broad national coalition. As a result, many effective technocrats and business and labor interests and leaders were not included or refused to serve on this government. The opposition is highly critical, and is keeping tab on how the MB are delivering on their promises, which they are not and cannot, given the reality and gravity of the economic and social situation.

Additionally, if the MB are to rescue the economy, they will have to take a ton of loans, attract foreign and domestic investments, and encourage tourism. However, these three areas contradict with their rhetoric!! They were strong critics of Ganzoury and previous governments for relying on loans; they took a nationalistic tone against too much reliance on foreign investments; and they also had strong issues with beach tourism which involves western tourists consuming alcohol and laying on the beach in their bikini’s! These contradictions make them an easy target to the sensational and liberal media, and also limit their appeal to the more conservative strands among their constituents, as well as the ultra-conservative Salafi movement.

The third limiting factor is the regional and international dimension, where everyone is watching their performance carefully, and trying to understand which way they will sway. The MB and its politicians have been trying to speak from both sides of their mouth! The latest US movie fiasco is a good example. They used a conciliatory rhetoric in their international media appearances, while using a populist rhetoric with their local base. Once that was obvious (in a funny Twitter exchange between the MB and US Embassy in Cairo), they tried to take a more conciliatory approach and absorb the anger of their base and the public through organized and controlled activities, rallies, and the like. The good news is their final pragmatist choice, and their ability to quickly evolve and adapt; however, their initial response shows the dichotomy that they are facing.

So what does all this mean?

First, the MB President and Government must perform, economically. If they don’t, they risk their position in power and much of their political gains. Unlike many who argue that their control over Egypt is a fait accompli, I would argue that it is contingent on their ability to perform economically in the next 6-12 months. Otherwise, we WILL (not may) witness additional rounds of turbulence that will involve broad sectors of the society, seeking  socio-economic, rather than political agendas. The only way to avert a large crisis is to involve other forces in the society in governing (and accountability) – and acting as a responsible leader in a time of crisis.

The current actions of the MB regime run contrary to this. First, their economic policies are identical to what Gamal Mubarak and his regime were implementing in the last decade! They are pursuing new-liberal economic policy, with complete disregard to the social and labor movements. What makes it worse, is that they are doing this alone, while alienating the rest of the political forces (fragmented as they are, they are still influential). They are also doing this while trying to consolidate their political power through partisan political appointments for most major positions in the national government and governorates, which is acting as another destabilizing factor.

So where would the MB take it from there? As we speak, they will have to make three major strategic choices, with very limited time to plan or reflect. First, on the domestic political side, they need to decide it they will continue to do it alone, rather than forging a broad coalition that includes other more liberal forces, especially as the Salafi’s continue to challenge them from the ultra-conservative side. Second, on the international arena, they need to decide on their relationship with the West at large, and with the US specifically. Would they continue the alliance that was forged by President Sadat and continued by Mubarak (albeit from a much weaker position of followership rather than partnership). This will decide on the nature of their relationship with other key players in the region like Saudi Arabia and Israel. Their other option is to seek a more independent or even confrontational relationship with the US, and try to compensate with stronger ties with Russia and China, which would constitute a very risky drift in such a turbulent time, and would exacerbate Egypt’s economic crisis.  Third, they need to decide on their domestic economic agenda. So far, they are implementing a new-liberal economic policy that is identical to Gamal Mubarak and Youssef Boutros Ghali. They need to decide if they will remain on this side, or if they will shift to the center-left to accommodate labor and social demands, both on the policy level and the rhetorical level.  What choices will they make will be obvious in the next weeks.

Thomas Friedman had a very insightful quote, when asked if Egypt may evolve into a theocracy like Iran or Saudi Arabia or follow the Turkish path. He said, “Iran and Saudi Arabia are political Islam with oil, Turkey and Egypt are political Islam without oil.” The economic pressures and constraints that the new regime is facing will limit and moderate its ability to coopt the state and take it into a full-fledged theocracy. It will put pressure on the MB to cooperate with other forces in the society, and limits their ability to undertake a dramatic socially conservative agenda. These economic pressures will also force the MB (and eventually, the Salafi movement) to moderate their political agenda, especially on the social dimension, and will help their evolution into a normal conservative party, not unlike the Republican Party in the US (more on this in a following blog!).

My prediction is that they will maintain the long-term alliance with the West and the US, albeit with a more independent rhetoric. They will continue to try to do it alone until the next parliamentary elections, where the results will give a clear indication if the public mood has shifted against them enough to justify creating a broad coalition, or if they still maintain enough of a plurality to govern alone. They will also maintain their neo-liberal pro-business economic policies, while displaying a more social rhetoric. Eventually, the MB will evolve into a right-of-center Party not unlike the US Republican Party.

Having said that, there is one major risk that we may face (a black swan scenario). As the social and economic pressures on the MB mounts, and more conservative elements within the organization refuse to give political concessions and include other forces in the society, the MB regime may resort to radical tactics to cement its control. This includes creating a large scale crisis that would give them stronger control, help them silence opposition, and justify the use of violence. A typical scenario would be by igniting a military conflict. This is exactly the scenario that Iran’s mulla’s pursued to consolidate their power and eliminate the other more political movements after the Iranian revolution of 1979. The war with Iraq gave them a chance to increase the level of polarization in the country, and to use forces of nationalism and patriotism to create a sense of national unity and urgency. This remains an unlikely, yet possible scenario. It is unlikely because the MB understand well the risks of being “the government that took Egypt to war” and also the lack of readiness of the military for any major action.

To end on a positive note, I would offer three conclusions: (i) the MB regime needs to perform, economically, otherwise, their reign over Egypt will be short lived; (ii) It is not a fait accompli that they have taken over Egypt, as a state, for the long term; and (iii) the economic pressures that they are currently facing will have moderating and constraining effect over their short term actions.

Amin Elmasry. 21 September 2012.

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A Weekend from Hell

A soft coup?

The level of political turbulence and uncertainty in Egypt will peak this weekend. As of today, the FJP and their allies were still trying to assemble the Constituent assembly; however, they seem to be making the same mistakes of the last round. Thursday, the Supreme Constitutional Court will make two critical verdicts. The first may invalidate all or part of the Parliament, thus depriving the FJP and Salafis of their legislative majority. The second may disqualify Shafiq from the Presidential election, with uncertain consequences. On Friday, the unhappy party or parties from the Thursday verdict will probably be demonstrating in Tahrir! Saturday and Sunday we may (or may not) have the second round of the Presidential elections.

Over the next three days, we will have a verdict on the Constituent assembly, Parliament, and Presidential election! If the three institutions are invalidated, this will constitute soft coup! It will be impractical to repeat all the elections immediately, so the implication is another 6-12 additional months, or longer, under the reign of SCAF. This scenario will likely include a new constitutional declaration issued by SCAF, and potentially some interim President (if Shafiq is disqualified). However, the chances of this scenario are slim.

There are so many other potential scenarios; however, deep inside, I cannot imagine a scenario that includes Morsy as a President. I cannot imagine the military and security apparatus subordinating itself to Morsy and the FJP and the Muslim Brotherhood.

The other likely scenario is Shafiq as a President, co-existing with the FJP-controlled Parliament, and an extended constitution-making process.

Either scenario (or combination) implies 2-4 more years under military rule, whether directly or through Shafiq. How the new regime will be received depends on the deals that they are willing to cut with the MB, Salafis, and liberal parties to appease them. either way, it is unlikely that things will calm down after this round of elections.

Amin ElMasry. 14 June 2012.

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Post-Election Reflections

Out of all possible combinations, Egyptians ended up with the worst choice for the second round of the Presidential elections. For the 50% of the country who did not vote for Shafik or Morsi, they face a dilemma from hell. Should they cast their vote to reincarnate the old regime or chose the Ikwan’s spare tire who would open the doors to a theocracy? Before making any meaningful decisions, we probably need to sleep over it, internalize this ironic defeat, and understand what really happened.

Voting Patterns: How Did the Vote Turnout This Way?

The voting patterns in the Presidential elections were very different from the Parliamentary elections. Some interesting trends:

  1. The Salafis disappeared! Apparently demoralized by the exclusion of their candidate, Abu Ismail, the Salafi bloc all but disappeared. Despite the declared support of their leadership to Abul-Fotouh, they did not show us in large numbers, and those who showed up, voted their heart and did not vote as a bloc. This is a sign that the Salafi bloc is mostly excited by candidates of its own, and is not also easy to drive by their leaders as always claimed.
  2. On the other hand, Copts decided to vote as a bloc this time, and mostly voted for Shafik. Rumors of official Church endorsement circulated. Where true or not, it is obvious that the Coptic vote was more mobilized this time, mostly driven by fear of the rhetoric of the political Islam.
  3. Despite their success in pushing their “spare” candidate to get to the top of the list, the Muslim Brothers were much weaker in their ability to mobilize the votes beyond their own core supporters (often estimated at around 30% of the vote. they lost a lot of support among their non-core voters. If they continue to behave in the same way, they are likely to lost more.
  4. The “deep state”, bureaucracy, security apparatus, and remnants of the NDP and previous regime supported Shafik in a desperate battle for survival; and they succeeded. Shafik ran a different campaign from most other candidates: he did not have any popular support base to campaign for him on the ground, but rather the old NDP machine and the state apparatus. The good news is that this machine with all its (old) might was only able to mobilize barely a quarter of the vote. The bad news is that if he comes to power, he will re-energize and restore this corrupt machine.
  5. Sabbahi’s last minute surprise surge is a sign that the secular and leftist sentiment is still alive and strong, despite the lack of an organized structure to represent it. This is a golden opportunity to build a new party to represent this constituency against the well-organized political Islam (and Christianity) and the remnants of the old regime.
  6. The revolution still wins! the total vote that Sabbahi and Abul-Fotouh (and others) got, in total, remains higher than the Ikhwan or old regime candidates. The voters were not able to naturally converge on one of the candidates; however, the two leading candidates are the ones to blame for not joining forces and running on a single ticket.
  7. It is also important not to forget that mostly the second-tier candidates were competing in this election. The top four candidates were not competing: El Baradei withdrew; Abu-Ismail, Omar Suleiman and El-Shater were disqualified. These candidates represented clear and powerful choices for the voters. Omar Suleiman was replaced by Shafik, and El-Shater was replaced by Morsi, who failed to capture Abu-Ismail’s constituency and left them without a candidate to represent them. El Baradei’s constituency first reluctantly and slowly migrated to Abul-Fotouh then started embracing Sabbahi in the last two weeks. Abul Fotouh and Amr Mousa are definitely not second tier candidates, but unlike the four “pure-bred” candidates above, they tried to capture the center by claiming broad, centrist positions.
  8. Finally, I was surprised by the low vote turnover. Almost half of the registered voters did not vote, in the first free Presidential elections in the history of Egypt (even less than those who voted in the parliamentary elections). I would be very curious to understand the reasons for their absence. Where they confused by the complexity of the choices? Where they turned off by the candidates bickering? Probably 20-30% of the missing votes belonged to the Salafis, who were demoralized after the loss of their candidate; but that still does not tell the whole story.

You add up all these factors and you end up with the disastrous dilemma that we are now facing: the two most polarizing candidates are facing off in the second round.

The Underlying Voters’ Behavior

These trends reveal some interesting underlying behaviors that may explain why Egyptians voted this way in their first free Presidential elections:

  1. Voting for fear: a big part of the vote for Shafik was not driven by a desire for a vision, candidate or program, but rather fear of the other side (political Islam, represented by the MB and the Salafis). The Ikhwan’s behavior over the past 6 months helped energize this voting bloc which was mostly dormant; whether Copts, or the so called “7ezb el kanaba”. This voting bloc was expected to go to Amr Mousa (and not vote at all). A well-tested elections axiom: “it is much easier to mobilize voters by (negative) fear rather than by (positive) desire.”
  2. Voting for balance:  Egyptians also showed that they desire a balance among the different ideologies, and are not excited by the idea of one side taking too much power. They may vote for the Islamists, but not enough to let them take over the country. They may vote for a secular army general as a President, but they won’t let him restore the previous regime. I would expect that this balance act to continue, especially during the period where we are testing the different parties, and demanding accountability. This balance pattern is very common in the US elections.
  3. Voting for closure: many are also exhausted with the extended transition period. Their economic interests are threatened and they yearn for the “Security and stability that they enjoyed under Mubarak’s regime”. This constituency is happy to see some sense of closure, not only to the transition period, but to the whole revolution, if they could. This is the anti-revolution constituency which voted to Shafik and will continue to support him in action that will protect their interests or undo the previous 18 months.
  4. Impatient expectations: the Egyptian voter proved to have a very low patience for results. The rapid decline in the MB vote over a period of 6 months is very alarming to any politician or party who believe that they can build a 17 year action plan! People want clear and rapid actions focusing on their priorities. The MB’s parliamentary agenda was completely off, and they are getting their electoral punishment faster than anyone expected. This is a great pattern of holding politicians accountable, and it will be very effective in aligning their actions with people’s interests (as long as we can maintain a free election).
  5. Pure-bred vs. hybrids: the Presidential elections also showed that people prefer candidates with clear and transparent positions (pure bred), e.g., Morsi, Shafik and Sabbahi, and are not too excited by candidates who try to take middle positions to appease everyone (hybrids), e.g., Abul-Fotouh and Mousa. This will give future candidates a clear incentive to have clear positions (even if they’re centrist) rather than taking vague positions.

So What’s Next?

For those 50% of us who are disappointed with the outcomes of the first round, this should not be the end. Looking at the bright side, we now have two leaders who have a clear public mandate from 5+ million voters. They should be able to speak on their behalf and represent their interests, even from an opposition seat.

Specifically, Sabbahi, has a big role to play. Amr Mousa’s votes are likely to migrate to Shafik, and I doubt that he will maintain a strong public role. The ex-Ikhwan and Islamist part of Abul-Fotouh’s vote will likely migrate to Morsi (and potentially, Abul-Fotouh himself). So those who will remain are Sabbahi’s voters and the liberal section of Abul-Fotouh’s base; both will likely be best represented by Sabbahi. Abul-Fotouh’s role will be determined by his own choices; whether he wants to support Morsi and get back to the Brotherhood, or remain in the centrist/liberal opposition along with Sabbahi.

His role in the next few days is to articulate our demands or political agenda, and put it on the table for both candidates. This should happen in a transparent way, rather than cutting deals in closed rooms.

The most important demand for this constituency is maintaining a civil state through a strong constitution that provides clear protections for individual rights, free elections, and judicial independence. This will be our main defense against the old or the new authoritarian state.

The second mandate for Sabbahi is to support the creation of a new political party that represents this constituency (Dostor Party), and work on uniting and expanding this voting bloc. This is critical for two reasons: first, the parliament is likely to be dissolved by the supreme constitutional court, and we should have a better representation this time; second, Shafik and his ex-NDP base are likely to start their own new party to compete in the next round, backed by a President in power, and the state apparatus.

The ultimate question of whether to vote for Morsi or Shafik or to boycott the elections will only become clear based on the actions of the two candidates during the next three weeks, and how they respond to the demands of the other 50% of the voters (as well as those who did not vote in the first round).

Amin ElMasry.
26 May 2012.

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The Tragedy of the Brotherhood

“They never miss an opportunity to miss an opportunity” – a statement that was often used to describe Palestinian negotiators, seems to apply as much on the Muslim Brotherhood. Every time in history they get a chance to gain legitimacy and to be accepted as a normal political player, they quickly end up in a confrontation with the regime, the military, the liberal elite, and the international interests. They are the main reason for consolidating their own enemies – this is the sad reality.

Last week, everyone was thinking that the Brotherhood is on the offensive, and on its way to gain full control of the state. They control the parliament. They were on their way to control the constitutional committee. They were pushing for a new government, led by the Brotherhood and their allies. And the final move was targeting the Presidency. For some, this seemed like a fait accompli.

The reality, I would argue, is quite the opposite. The Brotherhood feels that it is in a high risk situation, and it is getting on the defensive. The military is raising the threat of dissolving the parliament, and is refusing to replace the Ganzoury government with a Brotherhood government. The Brotherhood is also facing significant challenges in the constitutional committee, and they’re not able to find a suitable presidential candidate to support. The final blow would be a pro-military President, who is most likely to start his term by dissolving the parliament and then the Brotherhood would be left with nothing.

This scenario seems to be highly probably. Over the next few days, Hazem Abu Ismail is likely to withdraw (or get disqualified) , and soon after a military candidate will be announced (possibly Omar Soliman or someone of a similar profile), or one of the current candidates will be heavily promoted as the consensus candidate. This will lead to the consolidation of the Islamist vote behind Al-Shater, and the rest behind the military or consensus candidate, who “will” end up winning in a second round.

So why did the Muslim Brotherhood nominate Al-Shater to the Presidency? Pick your choice from seven good reasons:

Either way, the result is that the counter-revolution scenario is almost complete.

Why? Because the Brotherhood sold-out too early and for too little. They betrayed the revolution, and joined the counter-revolution. Today, they pay the price, but we will all pay a higher price. They are the main reason that we may get Soliman, Shafik or Moussa as the first post-revolution President. I hope that this won’t be the end.

The tragedy of the Brotherhood is, not only that they failed to gain power or even legitimacy in over a century, but also that they failed to stand up to their principles and values, when they had the chance to do so.

Amin Elmasry. 3 April 2012.

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A Revolution Struggling

14 months later, it seems that the Egyptian revolution is struggling at best, dead at worst. The counter revolution, led by the different elements of the previous regime (most of them still in power), is gaining ground. In this analysis, I’m not trying to be optimistic or pessimistic, but rather to reflect on what happened, and why we got to this point, which may help us all as we think of what is next.

The structure of the Egyptian state

To be able to make any predictions on where we are heading, it is critical to understand the structure of the Egyptian state (the state, and not the regime), prior to January 25th 2011, and how that was affected by January 25th revolution.

You can think of the Egyptian state as multiple layers, with the military at the core, followed by a strong security apparatus, followed by a political party (the NDP), all wrapped in an final layer of economic interests.

(i) At the core of the state, there is the military. Four months from today, we will celebrate six decades of military rule in Egypt. The military perceives itself as the guardian of the state and the sovereign institution. As a legacy of the Nasser era, they believe in a broader role for the military institution beyond defending the borders. This includes being a modernizing force, a balance for the internal politics, and, the hard core of the state. To do so, they maintain control over a big part of the economy, and reign over most of the governmental (and even private) institutions.

On the economic side, the military runs a large industrial complex ranging from military industries to civilian industries to farms, factories, and corporations. We are starting to learn more about this “military economy” side recently, e.g.,

On the governance side, the military’s control for the state is primarily due to the role played by retired army generals, who end up in leading positions in most of the government agencies. Most of the Governors are ex-military officers, as well as many ministers, heads or board members of governmental agencies, public (or even private) sector companies, or other important positions. Through their informal network and military culture, they control most of the state and the economy.

(ii) At the second layer comes an inflated security apparatus. Starting from the general and military intelligence organizations (who we know little if any about), to the famous state security, Ministry of Interior, and their Central Security Forces (CSF) (estimated in total to be more than 1.2 million strong). These organizations have infiltrated every single institution in Egypt to the point that they were micro managing the country. The review appointments and promotions in all state institutions to ensure loyalty and acquiescence.

(iii) At the third layer comes the (now defunct) NDP, which manages the political process, the local and municipal politics, and the managing of the day to day governance of the country. The party was the outer façade for the state, extending patronage, recruiting potential local leaders and ensuring their submission, harassing enemies. They also absorbed and channeled the political energies of the public (a mandate that they miserably failed in, especially over the past decade).

(iv) At the fourth layer, comes the government-controlled economy. Despite aggressive privatization, the state’s grip over the economy remains strong. The state directly controls the public sector corporations, companies owned by public banks, as well as the military economy; and indirectly controls most of the large private economy through other means.

While the state’s direct ownership and control of public sector companies has been significantly weakened over the past decade (as part of international pressure, as well as Gamal Mubarak’s liberalization policies), this ownership still exists in some sectors, like the labor intensive textiles sector. Additionally, the four public banks own and control a huge portfolio of companies (for example, the National Bank of Egypt owns most of the companies of Ahmed Bahgat, after he defaulted on his debts).

In addition to the direct ownership of companies, the state has a huge bureaucracy (estimated at around 8 million employees – one third of the total workforce in Egypt) that controls every move for the private sector, and ensures that they are controlled, and in many situations ensures their failure.

These four layers were basically the Egyptian state for the past 6 decades: the military hard core, the security apparatus, the state party, and the economy, dominated by the public sector.

The only real threat for this setup came, ironically, from the Gamal Mubarak Project. Gamal Mubarak pushed for privatizing the public sector (and replaced it with crony capitalists and loyal oligarchs). He also started controlling a big part of the state security apparatus through his alliance with Habib El-Adly. Rumors were that he was planning to place an ally on top of the military, which would’ve placed him in control of the core of the Egyptian state.

So what did the revolution do?

The revolution had three major effects on the state: (i) it destroyed the Gamal Mubarak project, (ii) it destroyed and weakened the outer layers of the state, and (iii) it created a vacuum of power that enabled the Muslim Brotherhood (MB) and other unorganized Islamist groups to surface. Let’s explore these one by one.

(i) The first victim for the revolution was the Gamal Mubarak Project. Most of his allies (whether in business or government) are in jail or lost their power. Their arch-enemy, the military, is now back in power. Gamal Mubarak had no popular base, or any other power base for that matter. The interesting thing about this project is that this was probably the only chance for Egypt to transition to a civilian-ruled state (albeit one that is dominated by oligarchs and the like).

(ii) The outer layers of the state were the second victim of the revolution. The most exposed layer, the NDP, was completely destroyed, both as individuals and as an institution. The NDP leaders are mostly in jail. They failed in regrouping or making any gains during the last parliamentary elections, despite the high expectations that they would still be able to draw some votes. Their offices were mostly burned and destroyed. The result is that the state was left without a political arm that can manage its political affairs, and represent the interests of the ruling elite.

The next layer sustained some big damages, but not fatal ones. The State Security headquarters and main offices were attacked and looted. Images of the torture rooms on national TV created a moment of truth for many who looked the other way and ignored the torture dungeons that they used to run. However, at the end, everyone, including the MB, acknowledged that the state needs a security organization, albeit a reformed one. So the State Security was “renamed” (allegedly restructured) to become the National Security. After that, they disappeared for almost 6 months! Nobody knows what they are doing, post-restructuring! Some signs show that they are back in the game. It would be interesting to learn more about their “new” mission, goals and activities since they were restructured. Who are they working for? What’s their agenda?

The other security organizations did not suffer the same damage because they were not publicly involved in the day-to-day political affairs of the previous regime, and they were also housed mostly on military zones, which protected their offices and staff.

As for the hard core of the state, the military institution, it gained a lot in the early days of the revolution. It regained its political involvement after being sidelined by Mubarak. It also gained a lot of popularity from its perceived support for the revolution. Army generals enjoyed playing the TV celebrities role for few months. I would suspect (without any facts!) that some of them seriously entertained the idea of staying in power, for a while, at that time. It shows in their behavior, and the way they managed the transition process. However, it didn’t take much for the military to lose this popularity and manage to become the focal point for public anger.

As for the economy, the revolution managed to weaken some of the top oligarchs who were the strongest power in the Gamal Mubarak era. Some of them are in jail or exile. Others are keeping a low profile to avoid their files being opened. However, once things settle down (sooner or later), this money will come back to politics, and will search for a new role.

The revolution also showed how weak the real private sector is. Egypt’s economy is dominated by the informal sector, the military economy, the rentier economy, the oligarchs, and the remains of the public sector! Whatever is left, is what you can really call a true “free market economy” – not much, I would argue.

So, in summary, what did the revolution do to the state structure? It destroyed the top layer, the NDP, along with its oligarchs; temporarily weekend the middle layers, the security apparatus; and damaged the reputation of the hard core, the military. 

(iii) The third effect was the release of the MB and the other Salafi forced from their dungeons. The MB, a powerful, secretive, and hierarchical organization started negotiating with Omar Soliman from day one. They were happy to sell off for a deal that gives them legitimacy and recognition and the release of their leaders from jail. In absence of Mubarak, who despised the MB and would not cut a deal with them for three decades, the state saw that it was in its interest to move the MB from the side of the revolution to their side. They needed a political arm that would fill in the vacuum left by the NDP, and they found a good (temporary?) solution in the MB. The MB from their side were content with playing that role. Some argue that they were traumatized after decades of persecution, and preferred a soft deal (Aboul Fotouh made that argument); others argue that they are just opportunists.

An injured state regrouping

At some point, probably during last summer, the “state” started to recover from its numerous injuries. The army took control or the executive power (and all other powers for that matter), and the security apparatus started to rebuild its capabilities. What happened next is a number of moves to regain control of the situation.

First, a new political road map started to appear, which undermines many of the promises that were given when Mubarak was deposed. Suddenly, rather than starting with a presidential election, this was pushed to the end of the process, and replaced with a parliamentary election. The process was expanded to allow for “more discussions of the constitution”. A poll to amend the 1971 constitution suddenly turned into a constitutional declaration that had little to do with the poll. In short, the new road map was full of landmines that kept exploding in our faces, and still do. (By design or mere incompetency? …or both? This remains unanswered).

Second, the revolutionary vanguard were infiltrated, killed, injured, lured into traps, bribed, or defamed. Every effort was done to destroy this strong bond that has evolved among a large number of youth who took the leading role in Tahrir during the 18 days. The result was a fragmented and much weaker revolutionary groups. I, personally, believe that most of the events of the past 10 months were staged, starting from Balloon, going through Mohamed Mahmoud, Maspero, Magles El Wozara, and Port Said. The patterns were too similar. They were “managed”, not reactionary; and they all had the same effect or exhausting the revolution.

Third, the media was neutered. Suddenly, some of the familiar names from the previous regime started new TV channels, with unlimited funding, and attracted high viewership. Next, many of the new independent channels were bought and consolidated by few business people (e.g., CBC, Modern and Al-Nahar). Next, many of the most vocal and popular anchors and commentators were harassed out of their shows (best example is the full lineup of the Tahrir Channel). And finally, the remaining few seem to be under huge pressures to “tone down their rhetoric”. The result is that over the past 3-6 months, the window of free expression that we witnessed right after the revolution has all but disappeared.

So where do we stand today?

Tahrir is silent. Did it just run out of steam? Or is it taking a deep breath, and coming back? The millions who took to the streets again on the first anniversary of the revolution on January 25th, 2012, make me believe that it is just taking a deep breath, and when it comes back, it will be harder and broader.

The state is rebuilding its layers. The security apparatus seems to be back in action, although in a covert way to avoid any unneeded agitation. The military is looking for a political cover to replace the NDP. It seems like they recruited the MB to play that role, but their performance so far is miserable for everyone.  If they continue this way, the military will have to recreate the “state party”. However, it is hard for them to do so without a president who anchors this process, hence the frantic search for a president who can represent the regime. This president much have his true loyalty to the military institution, and to a lesser extent, appeal to the MB, and to a much lesser extent, the revolution! A near impossible task.

If you see the signs of a new “state” party, start counting the days for the confrontation between the military and the MB.

So is the revolution over?!

I don’t believe so. What we have so far is a 3-way game: the military, the MB, and the “revolution” (whatever that means). The military gained from the ending of the Gamal Mubarak project, which is probably the most serious threat to their six-decade reign over Egypt. The MB gained legitimacy and control of the legislature. They seem to be too excited with their newly gained power not to realize their fragile situation (more on this later). The only party that did not gain anything yet is the youth who triggered the revolution and paid for it with their blood.

There are three reasons why I don’t believe it is over. First, the military and the MB cannot co-exist. They have to either merge or confront. The military and the MB are both hierarchical militant organizations that actually share a lot in terms of their culture and the way they manage their structure; however, they have completely opposing goals and values. It is very hard to have two powerful institutions like them co-existing in a state like Egypt, given the lack of a real democratic process. They will either merge (similar to Pakistan or Iran), which so far seems to be unlikely, or they will have to confront. When they do, I know where to put my bets.
(Read Robert Springborg’s interesting article on Egypt’s Cobra and Mongoose:

The second reason is the nature and underlying trends behind the revolution and the youth vs. the generals & MB. A big part of this revolution is a generational battle. A battle between an old generation the refuses to let go, and a much younger generation that is coming to age, and is trying to assert its power. The Generals, as well as the MB Guiding Office are all ailing. And time is on the side of the younger generation (eventually, the elders will die – this is a morbid reality of life). Also, the younger generation is rebellious, technologically savvy, and operates in a different space than the elders. They are not organized in a hierarchy, but as a flat network. Hierarchies are stronger, but rigid, while networks are more resilient and adaptive. Unfortunately, the only way to battle these networks is to kill their spirit and get them to lose belief in their ability to change things, and this is what the state has been trying to do over the past year.

The third reason is that the MB’s strongest days may be behind! I believe that the MB has already peaked two months ago, when they won the parliamentary elections and presided over the People’s Assembly. Since then, they have been exposed as opportunists, and more important, not capable of quickly delivering. Their youth base is slowly deserting them, and they are not likely to be able to replace them at the same rate. They are also challenged with the candidacy of Aboul Fotouh, which might create strong fractures in their cadres. The Salafis may actually be more resilient that the MB because they did not have the same structure to start with. They have enough diversity and a broader base to guarantee that they will continue as a powerful political force, regardless of what party or organization represents them.

Two other simple realities tell us what to expect: the poverty and lack of freedom and dignity that triggered the revolution are still there; now they are more visible and amplified. And second, the oppression machine that existed before the revolution has not fully recovered, so the state’s ability to control any uprising is limited. At some point, people will realize that they don’t like what is happening, and that there is nobody to stop them from taking to the streets, and they will do!

In the meantime, the state is frantically rebuilding its capabilities. And until then, it has no choice than acting with little conspiracies to influence things, and maintaining this fragile alliance with the MB.

*             *             *

PS. I don’t believe that there is much new in what you just read. However, sometimes telling (and remembering) the story makes it easier to understand where we are today, and where we’re heading to, and to regain control of our path.

Amin Elmasry. 23 March 2012.

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