Egypt’s Economic Turmoil Favors Radical Islamists

A deepening of Egypt’s economic crisis will advantage ultraconservative Islamist parties.

If last month’s demonstrations outside the United States embassy in Cairo, Egypt were a reflection of the economic hardships and political struggles plaguing the Arab republic, expect more of it in months to come.

Allegedly sparked by an anti-Islam film, the embassy riots were fueled by inflammatory television sheikhs and ultraconservative Salafist Muslims but soon overtaken by ordinary Egyptians who are frustrated about the lackluster pace of economic improvement in Egypt since the fall of Hosni Mubarak.

Since the former president’s resignation in February of last year, the Muslim Brotherhood, which won a plurality of the seats in the new parliament as well as the presidency, has failed to deliver on virtually all of the promises that it made. Foreign investment has dried up while tourism came to a standstill during a year of political upheaval. Industrial action is endemic while unemployment remains high. Nearly one in four Egyptians between the ages of eighteen and 29 is out of work.

The country runs a $3 billion monthly trade deficit. Among its top import products are fuels, foodstuffs and cereals. Egypt’s importers association reports that banks’ reluctance to provide trade financing had forced companies to cut imports in half since January 2011.

The government claims to have six months’ of wheat stockpiled but other staples, including beans, cooking oil and sugar, are running thin. The Cairo Chamber of Commerce warned last month that Egypt has been living off inventories of key food commodities. “Especially vulnerable is Egypt’s provision of beans,” writes Asia Times Online‘s Spengler columnist, David P. Goldman, “the biggest staple after bread.”

High dollar prices and dwindling cash reverses could lead to a 40 percent reduction in the supply of imported foods […] Egypt imports half its total food consumption.

The Egyptian government admits that it needs $12 billion to get through the next year but an independent analyst quoted in Egypt Independent puts the gap at twice that number.

Foreign reserves stood at just over $15 billion in August after currency injections from neighboring Qatar and Saudi Arabia, according to nation’s central bank. The Saudis are unlikely to continue to bankroll the Muslim Brotherhood though, given the animosity that exists between the Islamist group and the monarchy. The United States have suspended their pledged $1 billion in support after the Cairo embassy attack.

Once it has burned through its foreign reserves, the government will have little choice but to devalue the pound unless it continues to rack up the national debt. Devaluation would further increase the price of imported products and could cause higher inflation across the board, a problem that will be compounded by food shortages worldwide.

The American Interest‘s Walter Russel Mead predicted in September that such a crisis would “reduce the popularity of the government, much to the benefit of the radicals who hope to replace it.”

The Salafist al-Nour Party and its allies, who are backed by Saudi Arabia, currently have 25 percent of the seats in parliament compared to nearly 45 percent for the Muslim Brotherhood’s political wing and 7.5 percent for the liberals who comprise the third largest faction. If President Mohamed Morsi’s administration continues to appear inapt to deal with the economic calamities, the radical parties could well do better in next year’s election which is scheduled to take place within two months of a new constitution coming into effect.