David P. Goldman, author, economist, noted demographer, and associate fellow with the Middle East Forum, briefed the Forum via conference call on May 30, 2013.
Goldman contends that Egypt's unfixable economy will inexorably turn it into a failed state. Notwithstanding the existence of an educated, urbanized, and sophisticated class, Egypt remains an essentially pre-modern society with a 45% literacy rate and a dysfunctional higher education system unable to produce a competent labor pool to meet the demands of a globalized economy.
Over the past decade, Cairo's annual imports soared from $10 billion to $60 billion, mainly due to rising food prices. (Although over 70 percent of Egyptians are involved in farming, the country imports half of its food consumption). While these economic woes began on Mubarak's watch, the collapse of tourism and other economic problems under the Muslim Brotherhood regime has accelerated Egypt's economic decline.
The government's attempt to slash the deficit by cutting imports and gambling on the upcoming wheat harvest is running on fumes. With insufficient fuel to run its farming equipment, Egypt's wheat stockpiles – estimated at 68 days – will rapidly dwindle. Half the population already lives on two dollars a day or less, with one in three Egyptians suffering from malnutrition and two in five consuming no protein at all. Fearing a popular rebellion, President Morsi rejected the IMF's insistence on food subsidy cuts as a loan condition.
To make matters worse, the government has accelerated the economic spiral by using Egypt's natural gas for domestic consumption. With insufficient funds for energy imports, industrial production is likely to be disrupted during the summer to save natural gas for the electric sector (so as to avoid popular unrest from rolling blackouts), driving the economy to progressively shut down.
A combined $5 billion of low-interest loans secured from Qatar and Libya is only a temporary fix for the $40 billion-plus trade deficit; a joint EU, Asian, and American package to stave off economic collapse will be likewise futile "because Egypt's crisis is not a cyclical one, but a structural crisis of a country whose incapacity to deal with the modern, industrial world has been exposed by the events of the last couple of years." The only hope for temporary relief would be a major gift by Saudi Arabia – the only Arab state in a position to do so. Yet this is an unlikely eventuality given Riyadh's fear of the Muslim Brotherhood and its potential to destabilize the Saudi monarchy.
As a result, Egypt is slowly slouching toward state failure, "a banana republic in terminal crisis, without the bananas."
Summary account by Marilyn Stern, Associate Fellow with the Middle East Forum.