Egypt fights Islamic State – and pushes for economic growth

Egyptians have both protested and mourned the rise of IS in neighbouring Libya. EPA/Khaled Elfiqi

Egypt has found itself caught up in the fight against Islamic State (IS). Following the recent execution of 21 Egyptian Christian hostages by IS in neighbouring Libya on February 15, the Egyptian army sent its air force to attack Islamic State bases there. This marks a significant escalation of Egypt’s involvement in the fight against IS in the region.

IS has seen significant growth over the past year and a political vacuum in Libya has facilitated its rise on Egypt’s borders. This comes at a crucial time when Egypt is rebuilding its economy after several years of political unrest, as a result of the resignation of Hosni Mubarak in 2011 and the subsequent failure of Mohammed Morsi’s leadership and political mismanagement that led to the Egyptian people calling for his removal in 2013. The political and religious uprisings and the backlash that followed from various factions including the – now outlawed – Muslim Brotherhood, have left Egypt in a fragile position.

Threat of extremism

Egypt’s war against extremism is not a new phenomenon. As well as its politically unstable neighbour Libya, it shares borders with Sudan and Israel, making it vulnerable to attacks through underground tunnels and border crossings. Since the start of the revolution in 2011, Egypt has seen a great deal of unrest and the rise of militant groups including Sinai Province (Wilayat Sinai) and Champions of Jerusalem (Ansar Bait al-Maqdis) which have reportedly pledged their allegiance to IS, and carried out several attacks.

This instability poses a huge threat to Egypt’s economic and political stability. IS appear to have a successful model, with quasi-state structures including a tax system and law courts. It is exporting oil, hydrocarbons and staple foods, as well as trading other looted goods and antiques from the towns and cities it has seized. Funding from outside sources is a controversial topic; reports have claimed that countries including Qatar, Saudi Arabia and the US have provided it with funding.

As well as the physical consequences of the attacks that IS and other extremist groups are carrying out in the region that encroach upon Egypt and stretch the country’s military resources, these groups also pose a threat in terms of their allure to young Egyptians. This is evident in their success in creating identity-defining belief systems and recruitment strategies that have proved highly attractive to young Muslims across the world.

Economic challenges

Recent events have prompted Egypt to impose a travel ban to Libya and evacuate its citizens. This means that many poor uneducated Egyptians who have for many years gone to work on oil fields and construction sites at a minimum wage, may face unemployment. This comes at a time of high unemployment which peaked at 13.4% in 2013-14 – there are estimates that about 63% of unemployed people are aged between 15 and 29, and 67% of them hold diplomas and higher education certificates.

Political unrest within Egypt following the 2011 revolution led to large numbers of foreign companies pulling out their workers and a decline in overseas investment. This was compounded by a loss of foreign exchange reserves, fiscal deficits, growing public debt, rising deficits and capital outflows. As a result Egypt has lost half of the reserves of 2011 and continues to face reduced foreign exchange investments.

Political unrest since 2011 has hindered economic growth. EPA/Khaled Elfiqi

Reforms in motion

Despite unemployment figures showing a slight improvement, Egypt’s young people have become increasingly disillusioned with their lack of prospects. Radical measures are needed – encouraging and funding entrepreneurship for Egypt’s young people is crucial as is giving the country’s corporations incentives to grow. The president, Abdel Fattah al-Sisi, has started putting these measures in place.

Things are improving; Egypt’s economy grew by 3.5% in the 2014 fiscal year. Although this does not match the pre-2011 rate of about 6%, Egypt is targeting economic growth of 4 to 5.8% over the next three years, according to the finance minister, Hany Kadry Dimian.

Egypt’s Central Agency for Public Mobilisation and Statistics reported unemployment figures decreased by a fraction to 12.9% at the end of 2014 through improved structural and monetary reforms and through the tourism, telecommunications and construction sectors. Tourism is improving and foreign direct investment showed growth in the first quarter of 2014-15 as investors began to show interest – particularly in the oil sector.

In a recent speech, al-Sisi pledged 1.6 billion Egyptian pounds for the development of Egypt’s most desperate and needy villages. He promised to write off numerous debts for small farmers, create new sales outlets for unemployed youth at key locations, increase investments in the country’s energy sector, particularly in nuclear power, and push forward with the Suez Canal Regional Development project. He also pledged 100m Egyptian pounds to tackle the issue of street children by introducing measures to integrate them into society and reduce stigma.

The president further announced support for small businesses to help young entrepreneurs with tax breaks and interest free loans in an effort to reduce unemployment. This, coupled with a new investment law expected to resolve the bureaucratic hardships faced by new investors, will be a key driver for economic growth for the country’s youth.

Egypt signed a military agreement with France on February 16 2015. EPA/Khaled Elfiqi

Al-Sisi has linked extremism to “bad interpretations” of the Koran and has called for a unified Arab force to combat IS in the region. He assured Egyptians that things were improving economically and politically, referring to the recent military equipment deal with France as well as a visit earlier this month from the Russian president, Vladimir Putin and the planned visit from the Chinese president Xi Jinping next month. These are opportunities to positively shift Egypt’s reliance on the US in favour of stronger and wider strategic ties internationally.

Egypt faces a delicate challenge. The country must project itself to the outside world as a safe and stable destination for investment and tourism, as well as gain the support and confidence of the Egyptian people. The investor conference in March 2015 and parliamentary elections in March-April 2015 will be key opportunities to do this.

The measures outlined by al-Sisi are certainly promising and in tune with what Egypt’s economy needs. Investing in youth through entrepreneurship, driving out terrorism inside Egypt and at its borders, attracting foreign investment and pulling the poor out of unemployment, debt and illiteracy are central to Egypt’s economic development. Although these will be challenging, given the underlying social and political tensions the country continues to face, Egypt is taking steps towards establishing itself as a key player in the fight against IS while putting in the groundwork for economic recovery.