that it will require time, effort, and considerable political will. Many aspects of the program for Egypt must therefore be qualitatively different from those applicable to Western Europe; simply throwing money at the problem will not provide a solution.
Apart from Financial Resources, Egypt Requires Strengthening of Governance
Quite apart from the unlikelihood of a resource transfer of this magnitude, it may also largely be unnecessary. Many of the fundamental economic problems of Egypt have resulted not so much from a shortage of financial resources as from failures of governance—unclear property rights, a sluggish bureaucracy, an overburdened judicial system, a weak and unbalanced taxation system, corruption, uneconomic pricing of scarce resources (such as electricity and water), an education system that that does not deliver the skills and especially the quality demanded by an internationally competitive market economy, the prevalence of crony capitalism, oligopolies and reduced competition in many sectors of the economy, significant overstaffing in public enterprises, a perceived lack of accountability at many levels of government, and the list goes on. These impediments raise the cost of doing business and thereby discourage investment, and they also lower its productivity. Fixing these problems does not call for mounds of money, but requires analysis, implementation capacity, and above all, the political will to subdue the factions that benefit from economic rents created by inefficiencies in the economy. Discussions and data on these issues appear in World Bank (1992), el-Mikawy and Handoussa (2002), Ikram (2006), and World Bank (2016).
This survey of political-economy issues impacting the aid relationship would be unbalanced if it did not, even if briefly, refer to some problems raised by donors. The chief complaint of multilateral donors was obviously the slow implementation of the policy conditions in the agreement (the experience of the early 1990s was an exception).
The complaints of bilateral donors, at least on the economic side (one assumes they were getting sufficient strategic returns because they continued their politically oriented aid programs), generally concerned the insufficiency of good projects, slow implementation, and the mismatch between what the donors could do and the expectations of the Egyptians.
Bilateral donors often complained that there was a paucity of “spade-ready” projects that they could quickly incorporate into their aid programs. This led them to raise questions about Egypt’s “absorptive capacity.” Egyptian policymakers did, in fact, attempt to respond to this issue. Even as far back as the first meeting of the Consultative Group in 1977, the Egyptian delegation worked with the World Bank to prepare a list of projects divided by sector and distinguished by state of readiness—that is, whether it was an extension to an existing project, whether it was a new project and a feasibility study was ready, or whether it was as yet only a gleam in a ministerial eye. However, constructing a substantial portfolio of aid-worthy projects, backed by high-quality feasibility studies and with financing assured for the domestic currency component, undoubtedly represented a major challenge for a country unused to such procedures for receiving aid, and progress initially was slow.
There was also the pressure on donors to disburse their aid budgets within their country’s financial year; donor bureaucrats were aware that this was the most certain way of ensuring an adequate replenishment of their department’s budget in the following year. Depending upon the flexibility within a particular country’s regulations relating to external assistance, the pressure for quick disbursement could switch assistance toward non-project ends. Taking the United States as an example, in the period 1974–86, the Commodity Import Program disbursed about 80 percent and the PL-480 program almost 100 percent of the amounts allocated, while the project aid component disbursed barely 40 percent of allocated funds. Weinbaum (1986, 111) reports that even attaining this level of disbursements for projects required the USAID mission to make special efforts and seek approval from Washington for costly, expanded infrastructure projects and to provide support for several peripheral programs.
Dissatisfaction with the pace of the implementation of projects was an issue that caused some unhappiness among donors, especially in the earlier years of the Western aid programs (commencing from about 1974). In part, this should have been expected and was simply the result of the Egyptians’ inexperience of dealing with new procurement and other procedures and of starting work with countries and institutions from which they had largely been isolated for two decades. However, an important factor was the pressure on the Egyptian budget and the insufficiency of domestic resources to complement the foreign-exchange component provided by the donor. Donors felt that Egypt should be making a bigger effort to mobilize domestic resources so that it could fully benefit from the foreign assistance that was on offer.
Some bilateral donors, in particular the United States, felt that their Egyptian counterparts had unrealistic expectations about how much resources could be made available. Don Brown, the first director of USAID after the resumption of the aid program, said on more than one occasion that he had to keep reminding Egyptian officials that he had a large but not bottomless wallet. These remarks were occasioned because the Egyptian counterparts often appeared to think that most objectives could be attained simply by having the donors provide more resources. Commenting on this facet of the relationship between Egypt and USAID, Weinbaum (1986, 121) writes, “This notion of development during much of the [early] history of the program expressed itself in ‘build us this.’”
The third aspect of the relationship was the thorniest. The United States ambassador Hermann Eilts (1985, xv) described the attitude of Egyptian officials “as though there were some kind of an obligation on the part of foreign donors to provide them with economic help.” He noted that there was “usually little sign of appreciation on the part of Egyptian officials and an obvious reluctance to give public credit to the foreign donor for the burden borne by the latter’s taxpayers,” and that “their [the officials’] attitude often brought to mind Pharaonic friezes showing subject peoples bringing tribute to Egyptian rulers.”
Dissatisfaction with Egyptians’ apparent lack of appreciation of foreign aid was not confined to Ambassador Eilts, but also figured prominently in discussions among representatives of donor embassies in Cairo. I recommended that they read George Orwell’s Down and Out in Paris and London, especially the part concerning Orwell’s experiences in London, saying that it might help to disabuse them of any rose-tinted view they might harbor of the donor–recipient relationship. After reading it, one of the ambassadors commented that he had thereby acquired a much greater sensitivity concerning the relationship, but felt that Egypt in turn should be made aware that foreign aid had become increasingly hard to “sell” to donors’ constituents. Ambassadors would thus have to make strenuous efforts to ensure that recipients, regardless of what they actually felt, made appreciative noises that could be relayed back to parliaments in donor countries.
The fundamental question, however, was left unresolved: Did the recipient country accept that the resource transfer was a “gift,” for which it should be grateful, or did it view the transfer as simply part of a transactional exchange, to compensate the recipient for some service that it had provided? Examples of such incongruity of perception are not difficult to find: what the United States considered “aid,” the Egyptians regarded as but a due reward for recognizing Israel and not impeding the West’s access to Middle East oil, and thus did not feel any obligation to tug at their forelocks; during the war in Afghanistan, what the United States considered “aid,” Pakistan tended to view as rent for the use of Karachi port and the country’s road and rail network by U.S. military and support units. The donor and the recipient can be viewing the same transaction through different lenses, and that can create substantial misunderstandings.
Foreign Aid to Egypt: Benefit or Bane?
A question frequently asked in political-economy discussions in Egypt is whether foreign aid has had a beneficial or a baleful effect
