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How Aid Helped Turn Egypt into a Disaster

August 9, 2013 in Economics

By Dalibor Rohac

Dalibor Rohac

Senators John McCain and Lindsey Graham might be personae non gratae in Egypt but their call to stop US aid to the Egypt is fully justified. The story of Egypt displays all the pathologies commonly described the critics of foreign aid: waste, unintended consequences and the emergence of a culture of dependence and policy inertia.

This should not come as a surprise given that the aid — coming from the US, Europe or from the Gulf — has not been motivated by economic reasons but rather by the political importance of Egypt as the most populous Arab country.

A part of the aid was directed at the promotion of human rights and good governance. In retrospect, much of it seems like a waste of money. Between 2007 and 2013, Egypt received €1bn from the EU, making it one of the largest recipients of European aid. According to the European Court of Auditors, the aid — half of which was simply given to Egypt’s Treasury as direct budget support — did nothing to foster good governance, human rights, or fight corruption. Similarly, in 2009, US Office of Inspector General concluded that the continued American support to Egyptian NGOs had essentially no positive effect on civil society because of the oppressiveness of Mubrarak’s regime.

But waste is a relatively minor problem compared to the corrosive effect that continued aid has had on the Egyptian political and economic landscape. Since Egypt’s independence, the US has provided Egypt with some $70bn in aid, most of it going to the country’s military. Egypt’s Armed Forces are the largest on the African continent and control a large fraction of the economy, between 15 and 40 per cent of GDP, according to some estimates. The military runs hotels, resorts, and numerous manufacturing businesses producing anything from kitchen appliances to olive oil and bottled water.

The aftermath of the coup makes it very difficult to claim, as some did in the past, that the military is a benign force — or that the west has any leverage over it. Instead, the bloated, opaque, and powerful organisation is now the single biggest obstacle to Egypt’s transition to a representative form of government.

But it gets worse. The aid that has come after the Arab Spring — particularly from Qatar — likely deterred the government from tackling the country’s soaring budget deficit. During his year in power, Qatar gave Mohamed Morsi’s government $7bn in …read more

Source: OP-EDS

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