Sisi's miracle: Boom and bust in Egypt's industrial sector

At an economic conference in the Red Sea resort town of Sharm el-Sheikh last March, Egypt's government brazenly announced it had signed investment deals worth more than $138 billion - during the first two days of the conference alone.

President Abdel Fattah al-Sisi said during the closing remarks of the conference - with, one must say, a little too much self-confidence - that the sum announced by the government was still not enough to give Egypt a genuine chance to prosper.    

"I know Egypt and its problems and I can see them as I can see you now. I know the solutions as I see you now," he told attendees.

"Egypt needs no less than $200 to $300 billion to have real hope for the 90 million Egyptians to really live, really work, and really be happy. We are behind, and those who are late must either speed-walk or run… even running will not be enough in our case."

One year later, the billions of dollars promised at the Sharm el-Sheikh conference proved to be nothing more than just words of propaganda. Egypt's economy not only failed to speed-walk or run, but is still limping along with one leg bleeding.

Egypt's non-oil industrial sector, which is a major contributor to economic growth, is facing the worst and longest contraction in its history.

Since 2008-2009, when the global financial crisis was at its nadir, Egypt's non-oil manufacturing industries has experienced no fewer than four boom-bust cycles.

In less than one year of Sisi's rule in Egypt, non-oil industries went bust

The steepest rise and fall, however, started after the army's ousting of President Mohammed Morsi in 2013 and continues to date.

The industrial sector boom lasted for 19 months - from August 2013 to March 2015 - reaching an all-time high, with production up 55.69 percent, in June 2014.

However, in less than one year of Sisi's rule in Egypt, non-oil industries went bust, diving to an all-time low, with production down 30 percent in June 2015, according to the ministry of planning. The drop of the curve started in April 2015 and is still falling.

The rise and fall of the industrial sector since Sisi came to power in July 2013 reflects the rise and fall in expectations that capitalists - both local and international - had towards the general's rule. 

A closer look at the gloomy data that has appeared in the past few weeks - regarding domestic and global demand and investment in the industrial sector - explains how the crisis developed. Prominent US economist Michael Roberts put it bluntly: "Weak demand causes lower investment, causes lower growth."

The Central Bank of Egypt (CBE) reported that the growth rate in non-oil manufacturing industries for the second quarter in a row shrank by 4.5 percent year-on-year in the first quarter (July-September) of fiscal year 2015/2016, compared with a growth of 20 percent during the same quarter in the previous fiscal year.

As the industrial sector accounts for the second-largest chunk of Egypt's gross domestic product, GDP growth slowed in the same period, from 6.8 percent to three percent, as this writer projected.

Apparently, the problems facing the industrial sector are here to stay. Data published by Markit this month showed that the downturn in Egypt's non-oil private sector was sustained in February 2016, with business conditions worsening for the fifth month in a row.

Domestic demand has collapsed in key industrial sectors such as automotive, textiles, food, pharmaceuticals, electronics, furniture and building materials - and many companies reduced their output as a result.

Domestic automotive sales, for instance, plummeted by 32 percent year-on-year in January, according to a report from industry association AMIC.

Meanwhile, car assemblers are now forced to cut their production by 30 percent, given the current foreign currency crisis. Last week, the gap between the pound's official market rate and the pound's black market rate had increased to 25 percent. This gap is a symbol of Egypt's economic weakness - as it struggles to attract foreign currency.

On the other hand, demand from abroad also fell as the result of the global economy slowing down. Egypt's non-oil exports declined by 16.5 percent to $18.6 billion during 2015, compared with $22.2 billion in the previous year.

Meanwhile, investment, both public and private, in the non-oil manufacturing industries fell by 8.7 per cent to $1.1 billion in the fiscal year 2015/2016, compared with $1.23 billion during the same quarter the previous year.

More signs are visible that Sisi is losing his once unchallenged popularity

In light of all these data about demand and investment, the industrial sector's crisis is likely to continue to force more workers out of the labour market.

According to the Markit survey, Egypt's non-oil private sector companies reported further job losses in February. Employment decreased for the ninth successive month.

With the rise of unemployment rates, and as high expectations hit reality, frustrations grow in the street, and more signs are visible that Sisi is losing his once unchallenged popularity, as the crisis of his rule deepens  every day.

After twenty months of rule, Sisi, who promised Egyptians they would "see miracles" under his rule, is increasingly losing confidence.

In his latest speech, addressing the nation in February during the launch of Egypt Vision: 2030, he did not seem to have any solutions to the economic challenges - other than urging Egyptians to donate one pound daily "in the love of Egypt", and offering himself for sale; a sign read by many observers that many gloomy days are on the way.


Ibrahim AlSahary is an economist and former executive chief editor of Egypt Independent.

Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.