Sisi's economic vision for Egypt: back to the future

Thu May 22, 2014 7:08pm IST

* Sisi's main plan based on proposal from 1985

* Corruption, unemployment, budget deficit threaten economy

* Foreign investors want clarity on taxes, currency, subsidies

By Stephen Kalin

CAIRO, May 22 (Reuters) - Days before a presidential election he seems certain to win, Abdel Fattah al-Sisi released a detailed, colour-coded rendering of "The Map of the Future", designed to reassure Egyptians he is serious about attracting investment in their battered economy.

But the idea is nearly 30 years old and was never implemented because of its high cost.

Like much of the programme Sisi has hinted at in media appearances, the map draws on practices from the era of President Hosni Mubarak, prompting more accusations that the former army chief is a product of the old regime.

Sisi, who was Mubarak's military intelligence chief before ousting elected Islamist leader Mohamed Mursi last July, has set out a bare-bones economic vision underpinned by age-old dominance of state institutions, including the army, and the hard work of ordinary Egyptians.

But voters and investors - even those supporting Sisi - have been left mostly with vague plans to remedy the economy, suffering from corruption, high unemployment, and a widening budget deficit aggravated by fuel subsidies that could cost nearly $19 billion in the next fiscal year.

The centrepiece of Sisi's platform - the map - involves the state building cities in the desert to enable a burgeoning population to live on 100 percent of the land. Egyptians currently occupy six percent.

"The vision aspires to achieve unprecedented rates of development and effect a quantum leap in the Egyptian economy after the way is cleared by the new administrative and investment maps for the provinces," his platform said.

Farouk El-Baz, a geologist who once worked for NASA, told Reuters he drew up the plan in 1985 - in the fourth year of Mubarak's 30-year rule when Egypt's population was 50 million compared to the current 85 million.

The "development corridor" that Baz designed includes a railroad, an eight-lane highway, water and electricity lines and fully developed towns and cities on 10.5 million acres of untouched land west of the Nile.

Sisi's project appears even larger, with 48 new cities, eight airports, fish farms and renewable energy projects generating 10,000 MW of power.

Baz told Reuters Mubarak was not initially interested in the plan. Baz then spent years lobbying the government only to have the plan dismissed in 2005 after a ministerial committee found its $23.7 billion price tag exorbitant.

Days after declaring his candidacy for president in March, Sisi turned to Baz and in four private meetings they discussed the corridor, Sisi's keystone, Baz told Reuters.

Sisi has said he will rely on contributions from Egyptians living abroad, foreign investment and continued Gulf aid already at $20 billion to finance the project's cost, which he estimates at $140 billion.

"They're almost suggesting that concerted state efforts in certain realms will magically solve Egypt's problems," said Nathan Brown, an Egypt expert at George Washington University.

"That's not a programme."

ECHOES OF NASSER

Sisi has consulted with international experts including Peruvian economist Hernando de Soto, World Economic Forum head Philipp Roesler and Saudi billionaire Prince Alwaleed bin Talal.

His outreach suggests he is aware of the magnitude of the challenge and wants to rescue an economy hammered by street protests and political violence since Mubarak's fall in 2011.

"The key to my vision is decisions and approaches that open the doors to modernisation, labour, development and diligence before all Egyptians equally. It is the first of its kind," Sisi said in the opening to his electoral programme.

"You don't usually find the same person supported by the extreme left and the extreme right at the same time, and by the rich and the poor," said Abla Abdel-Latif, a member of the committee that advised Sisi in preparing his programme.

"So he has the political will and the tools to try and do things, and the programme that he's presenting is actually taking care of things."

Contradictions between past and present statements makes it difficult to pin down Sisi's intentions.

In 2006, he wrote that the Middle East's economic problems had been made worse by attempts "to sustain government controlled markets instead of free markets".

Nowadays Sisi has largely avoided using free market rhetoric, referring to the private sector mostly in appeals to help protect the poor and implement state-led development plans.

A national project on this grand scale draws comparisons to the High Dam in Aswan, a legacy of President Gamal Abdel Nasser to whom Sisi is often fondly compared.

Under Nasser in the 1950s, the state took on the role of provider and protector, implementing a welfare state buttressed by the Arab world's biggest army.

Subsidised food, housing, education, healthcare - and dreams of Egyptian glory symbolised by the High Dam - won Nasser legendary status, but lavish state spending proved unsustainable.

The public sector has since ballooned and the military - with a budget shielded from oversight - has accrued a business empire some estimate at up to 40 percent of the economy. Sisi says it is more like two percent.

His map plays well with a domestic audience eager for visionary leadership, though outsiders are less impressed.

"The general concern is that he believes the state can solve a lot of problems, although part of the issue in terms of state manufacturing is that it has problems of its own, so there is a risk he could just be layering on more problems," said Ahmed Badreldin, a partner at private equity firm Abraaj Capital.

Investors are unlikely to return to Egypt without knowing what will happen to a weakening currency, a changing tax regime and a huge subsidies programme slated for reform.

"We need to have a clear strategy in these three segments ... regardless of the change of government," said Ahmed El Sheikh, PepsiCo's business unit general manager for North East Africa.

"So I know I'm going to take a hit in an evolutionary manner instead of (a) revolutionary (manner)."

Although diplomats don't doubt that Sisi is determined to improve the economy and create opportunities for Egyptians, the lack of a realistic plan raises concerns.

Investors agree that the economic team Sisi puts in place will be at least as important as any specific policies.

Given Sisi's long army career, he may rely on military advisers. After all the military is believed to control a vast economic empire ranging from automobiles to tablet computers and has been seen as more efficient than Egyptian governments.

But some doubt that will be enough.

"Sisi is a child of cronyism and militarism, so will find it hard to mount a convincing reform agenda," said Daniel Broby, chief executive of investment boutique Gemfonds. ($1 = 7.1249 Egyptian Pounds) (Additional reporting by Shadia Nasralla and Tom Perry; Editing by Michael Georgy and Giles Elgood)