An Opportunity in Egypt

December 21, 2011 By Joel Paque

Uncertainty about Egypt’s future is high these days, with political violence marring the parliamentary elections less than a year from the initial events that led to the removal of Hosni Mubarak.  Policymakers and experts alike are wondering how the United States can support democratic and peaceful progress, even as they recognize the limitations imposed by the financial crisis. With over 80 million people and the largest non-oil dependent economy in the Middle East, Egypt presents a critical opportunity to advance U.S. economic interests.

The new government’s political composition, commitment to greater democracy, and disposition towards the West in general and U.S. in particular will likely take time to crystallize. In the meantime, the question of U.S. assistance to Egypt, and the leverage it can provide in encouraging a transition to a stable democracy, is one worth asking. The final FY12 budget includes $1.3 billion in security assistance in addition to $250 million in already pledged economic assistance to Egypt, similar to the amount of aid the U.S. provided before the removal of Mubarak. However, this aid now comes with conditions that free and fair elections be held, and that progress is made towards the transition to a civilian government.

While the future of Egypt is ultimately in the hands of its citizens, U.S. assistance can play an important role in helping to influence both the political and economic future for the country. How we balance the “carrot and stick” of current and future aid packages could help the continued transition from military to civilian rule, as the bulk of current aid goes directly to the military. If the Secretary of State and Congress are not satisfied with the speed and process of the transition, the Egyptian military stands to lose the funding and security assistance programs.

Security assistance isn’t the only tool for the U.S. to help influence the direction of events. While the private sector may be justifiably weary of investing in uncertain environments, a window still exists when U.S. government assistance could help alleviate some of this risk, advance U.S. interests, and help U.S. businesses tap into new markets.  Last March, the United States announced it would commit $2 billion of economic assistance through the Overseas Private Investment Corporation (OPIC), which provides political risk insurance for American businesses to invest in the developing world and thus helps them gain entry to emerging markets.  In November, OPIC approved a $150 million loan guarantee to Citibank to work with Citadel Capital, the largest private equity firm in North Africa, to back investments in the North Africa region, primarily in Egypt.

With the public weary of the military-led “regime change”, Egypt provides an opportunity for the U.S. to use its full array of foreign policy tools through diplomacy, economic development, and security sector programs that will help build allies with the new governments in the Arab Awakening countries. Now is not the time to step back.  Instead, the U.S. can and should be proactive in engaging and supporting the transition to a stable, more inclusive Egypt.