Four years into a robust economic expansion, this country has shaken off its history of sleepy Arab state socialism and embraced the market. A rush of construction is throwing up office buildings as fast as Western-sounding names, such as Palm Hills, can be dreamed up for them. Sluggish state-owned companies from banks to department stores are being sold to private investors, and foreign capital is flooding in, lured by the scent of certain profit.
Egypt today has all the earmarks of a gathering boom. Strange then, that most Egyptians seem so miserable. "Living conditions are difficult. Everyone is suffering because of higher prices," says a weary Gomaa Ali, a local restaurant owner.
At Ali's tiny downtown eatery one recent day, the flies outnumbered the customers. Double-digit inflation combined with stagnant wages has eaten into his business and made the government's talk of a surging economy seem hopelessly divorced from reality. "People have become more reluctant to eat out. If you'd come here two or three years ago, this place would be packed, and they'd have to line up to get a table," he says, gesturing at the empty chairs and sweating in the oppressive midday heat.
Even as the government touts a litany of impressive statistics, Ali's complaints find echoes among Egypt's long-suffering 80 million citizens. Ambitious economic reforms launched in 2004 have won plaudits from the business community but have done little for the average Egyptian. Poverty, in fact, has increased slightly over the past three years despite an economy growing at an annual rate of about 7%. That disconnect raises questions about whether the government can sustain its reforms amid mounting labor unrest and a generalized air of complaint.
Egypt's reformist prime minister, Ahmed Nazif, remains committed to the transition from a bloated state-centric economy to a more market-oriented one. But security officials worry that the danger of instability, as popular subsidies on food and energy are reduced, outweighs the potential for long-term improvement in living standards. Sharply elevated global food prices are only intensifying the dilemma, as the government opts to increase spending on bread subsidies it had hoped to reduce.
"They're reluctant to do more. … They're not in a mood to be challenging the street," says economist George Abed of the Institute of International Finance, a global association of financial institutions in Washington, D.C.
Watching closely are foreign investors who've been pouring funds into the Arab world's most-populous country. From just $450 million five years ago, foreign direct investment rose to more than $10 billion last year. One key: Egypt has been among the principal beneficiaries of a torrent of oil dollars coming from countries such as Saudi Arabia and the United Arab Emirates. The USA was the leading source of capital last year, though it ranks eighth in cumulative investment. Major American corporations such as Citibank, General Motors and Procter & Gamble have sizable stakes here.
The largest U.S. investor is Apache Corp., a Houston-based energy company that first began exploring for oil and gas deposits in 1994. About one-fifth of the company's $3.2 billion in first-quarter production revenue came from beneath the Egyptian desert.