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1. Trading short-term gains for long-term costs: the Egyptian political economy under al-Sisi

Author:
Matteo Colombo
Publication Date:
03-2023
Content Type:
Policy Brief
Institution:
Clingendael Netherlands Institute of International Relations
Abstract:
Egypt’s political economy has been operating on the basis of three core principles over the last few decades. First, the country’s political authorities set strategic economic objectives in a top-down manner. Second, the power elite supports the political authorities and, in exchange, tightly supervises homegrown and foreign investment to generate revenues and job opportunities, as well as private benefits. Third, Egyptian citizens acquiesce, willingly or unwillingly, in this division of power that mostly benefits the political authorities and power elites in exchange for improvements in their livelihoods. Since 2014, President al-Sisi has held closely to these principles but relied increasingly on Egypt’s military networks (part of the power elite) to boost economic growth. This strategy has produced short-term gains – informal jobs and an array of consumer goods – at the expense of long-term economic prospects. In particular, the military’s economic influence has deepened some of Egypt’s structural problems: low productivity, inequality, informal unemployment and a suppressed private sector. This limits the future sustainability of the current economic model. Improving Egypt’s economic prospects requires reducing the role of the state – especially the military – in the economy in terms of decreasing the number of associated enterprises and lightening the regulatory framework. However, this is nearly impossible to realise in sectors in which the military already has a dominant profile, such as construction and extractives, because its support is essential for al-Sisi to maintain power. A more promising alternative for European policy makers to consider is influencing the Egyptian government to limit military influence in sectors with growth potential where the military is largely absent, such as manufacturing and Information and Communications Technology (ICT). A government strategy that prevents further military involvement in these sectors, crafts a regulatory framework conducive to private investment and invites foreign funding, can help Egypt realise greater economic growth and higher fiscal revenues.
Topic:
Development, Political Economy, Economy, and Abdel Fattah el-Sisi
Political Geography:
Middle East and Egypt

2. Greater than the Sum of Its Parts: Abraham Accords Free Trade Area

Author:
Robert Greenway
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Hudson Institute
Abstract:
The Abraham Accords provide an unprecedented opportunity to increase trade and investment among its members significantly by establishing a regional free trade area that would ensure progress toward their aspirations, preserve the integrity and stability of global markets, fuel growth, and constrain China’s predatory trade practices. Signatories to the accords committed to a shared vision of peace and prosperity and recognized that economic integration can enable members to achieve their long-term economic goals. The accords have paved the way for comprehensive partnerships on a variety of issues related to security, trade, investment, the environment, innovation, tourism, energy, and other key sectors. While the growth in bilateral trade is of great significance, the true transformative power of these peace agreements lies in expanding regional integration and cooperation. This is already underway. Israel concluded a Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) in December 2022 and is currently negotiating a free trade agreement with Bahrain. Both will significantly accelerate economic development and provide incentives for others to follow suit. Israel's new foreign minister, Eli Cohen, recently stated that the volume of trade with Arab countries that normalized relations with Israel under the Abraham Accords in 2020 exceeded $2.8 billion dollars in 2022. While progress has been remarkable, its potential is far greater. According to RAND analysis of the potential of bilateral free trade agreements (FTA) between Israel and current signatories, the accords could create 46,000 new jobs and $24 billion in new economic activity for Israel's four partners. The benefits of a multilateral FTA encompassing current signatories would triple the overall benefit, creating more than 150,000 new jobs and new economic activity exceeding $75 billion. A multilateral FTA among an expanded number of potential signatories to the accords could create as much as 4 million new jobs and $1 trillion in new economic activity through 2030. This potential is not lost on the Chinese Communist Party (CCP). The CCP represents one of the most significant threats challenging the United States and its partners and allies. China’s state-directed economic policies, predatory lending, cyber intrusions, theft of intellectual property, illicit technology transfer and other coercive practices, industrial subsidies, and market access restrictions on key sectors of China’s economy constitute the most significant threats of the coming century. Several trends exacerbate the need for integrating markets aligned toward common goals. The global pandemic, the Russian invasion of Ukraine, Brexit, tariff tensions, political instability, protectionist policies, and regulatory uncertainty have threatened global trade by disrupting established supply chains and their underlying constellation of business models and trade relationships. As is often the case, these complex and interrelated challenges constitute an opportunity to realign our trade to safeguard the integrity of global markets and pursue US goals and objectives in collaboration with our partners and allies. The Abraham Accords offers just such an opportunity.
Topic:
Foreign Policy, Economy, Free Trade, and Abraham Accords
Political Geography:
Middle East and Israel

3. Cash Cabal: How Hezbollah Profits from Lebanon's Financial Crisis

Author:
Samara Azzi and Hanin Ghaddar
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
In March 2020, Lebanon opted for a “hard default” on $32 billion in sovereign debt, allowing the government to avoid negotiating with its Eurobond holders and investors. Beirut thereafter showed little interest in addressing the consequences of default, and the country’s economic meltdown worsened. As usual, the Lebanese people were the casualties, suffering amid what the World Bank has called a “deliberate depression.” This official negligence has cleared the way for a proliferating cash economy—which in turn has spawned a currency exchange scheme involving the central bank, foreign exchange agents, and Lebanese politicians. Hezbollah specifically has profited in areas ranging from real estate to solar energy, pharmaceuticals, and the illicit Captagon trade. In this Policy Note, authors Samara Azzi and Hanin Ghaddar—a venture capitalist and a former Lebanese journalist—skillfully diagram the corrupt status quo and explain why entrenched actors want to avoid systemic change. But as the study makes clear, the future health of the Lebanese economy requires an overhaul, and the international community must now press for deep reforms and personal accountability.
Topic:
Politics, Non State Actors, Financial Crisis, Economy, Hezbollah, and Shia Islam
Political Geography:
Middle East and Lebanon

4. Arming the Revolution: Trends in Iranian Defense Spending, 2013–23

Author:
Henry Rome
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
The Washington Institute for Near East Policy
Abstract:
The Islamic Republic boasts a large and expanding nuclear program, the most capable missile and drone force in the Middle East, and a broad network of proxies that threaten U.S. interests. Nevertheless, scholars have devoted little attention to a key area: Iran’s defense spending. Although the data is publicly available, tabulating it is more difficult than one might assume, and three particular hazards await: (1) conversion of Iranian rials to dollars at unrealistic rates, (2) reliance on spending plans as opposed to actual spending, and (3) undercounting. Thus, any attempt to understand Iran’s military spending must scrupulously avoid such traps. In this Policy Note, Iran expert Henry Rome offers the most detailed public accounting yet of Tehran’s recent defense spending, illustrated by charts showing domestic trends and comparisons with regional rivals. The findings show how spending surged following the 2015 nuclear deal and plummeted following the U.S. withdrawal from the deal in 2018. They also suggest that a new nuclear accord with Washington will likely prompt another increase, demanding a broader strategy to counter Iran’s military ambitions alongside its nuclear ones.
Topic:
Security, Nuclear Weapons, Economy, Defense Spending, and Military
Political Geography:
Iran and Middle East