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Egyptian protests pose sharp contrast to economic progress

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      By Emerging Markets Debt TeamEaton Vance Management

      Boston - Protesters took to the streets of Cairo and various cities around Egypt over the weekend in defiance of the government's ongoing crackdown on dissent and unauthorized street demonstrations. The protests appeared to be called for by a former government contractor, Mohamed Ali, said to be in self-imposed exile in Barcelona, Spain.

      The demonstrations were small by Arab Spring standards, but also shocking, given the harshness of the government's response to earlier protests. President Abdel Fattah el-Sisi took power in 2013 after a military coup, and security forces killed more than 1,000 people and arrested thousands of others in the aftermath.

      Earlier this year, a majority of Egyptian voters approved constitutional changes that would allow Sisi to remain in power until 2030. Following the referendum, people who had campaigned against the changes were arrested.

      The protests highlight the difficulties Egypt faces as it proceeds with economic reform after a $12 billion loan package received from the IMF in 2016. Earlier in the year, we discussed the government's new initiative to privatize state-owned enterprises, with plans to raise $4.5 billion by selling stakes in 23 state companies.

      Such moves have helped reduce fiscal imbalances and sparked economic growth, with GDP at 5.4%. Foreign currency reserves have increased, while headline inflation has subsided. Egypt's Zohr offshore natural gas field - the largest in the Mediterranean - began pumping in 2017, and is a major step toward the country's goal of energy self-sufficiency.

      However, last year we wrote that "the army appears to be expanding its role in the private sector and we are keeping an eye on any social tensions that could lead to protests." This tension is at the core of charges made by Ali, in his extremely popular online videos, that Sisi is building lavish palaces for himself and wasting public funds on projects like a luxury hotel near Cairo.

      Such charges clearly struck a nerve with Sisi, who acknowledged that he "built presidential palaces" and said he would continue to do so. "All of this is not mine. It belongs to Egypt," he added. Yet to the extent palace-building and the expanding role of the military in the private sector have boosted the economy, such growth has bypassed large segments of the population. By the government's own measures, the percentage of Egyptians living in extreme poverty has increased to 32.5% in 2019 from 27.8% in 2015.

      Bottom line: Sisi appears to assume that the economic progress Egypt has achieved can be sustained while suppressing dissent and enriching the military at the expense of the private sector. If the unrest hinted at by Ali and fellow protesters is widespread, it could challenge that assumption.