Why the GCC countries aid Egypt?

1.  Why are the Gulf States so interested in helping Egypt’s economy after the revolution?

We can sum up the reasons for providing help to Egypt by Gulf countries in the following:

1. There is a high interdependence between economic performance and political stability.  Egypt economy is threatened by serious decline due to the fact that the current revolution is not properly managed by its own forces.  Interruptions in economic activities could lead to negative growth, with a higher impact on the poor masses, leading to disaffection and more political instability.

2. The stability of the Arab and particularly the Gulf region critically depends on the stability of Egypt.  This is because Egypt is the largest country in population, political prestige and military might.  It stands as a countervailing force vis-à-vis both Israel and Iran.  Unstable Egypt could encourage the two forces to increase their mischief in the Arab region, negatively affecting the stability of the whole region.

3. Economic deterioration and resulting stability could lead to a belligerent revolution that could be destructive, spelling over into neighboring gulf countries.

4. Common cultural ties between the Egyptian and the Gulf people creates mutual empathy to the extent that one of them would not tolerate the suffering of the other.  In particular, the common religious beliefs as Muslims command everyone to help the poor in general and neighbors in particular.  Islamic teachings make it a grave sin to ignore the  needs of the poor and dispossessed.  However, the religious factor works only at the personal level, and is reflected on increased aid from non-government institutions.

 

2. If not covered in your answer to the first question - do you think Islamic/sharia-compliance is a motivation for Gulf economic assistance to Egypt?

3. What is the most effective way the Gulf states can help Egypt? Currently it's a mix of loans, gifts (grants) and investments being offered.

1. The most suitable way of providing assistance to Egypt in particular and developing countries in general is through grants followed by investment finance.  The latter includes:

1.1.          Finance of capital through partnership (Musharaka and diminishing Musharaka),

1.2.          Finance of working capital through Profit-and-loss-sharing schemes (PLS, like Mudaraba),

1.3.          Commodity finance through providing commodities, including productive assets, against deferred payment or through leasing that ends with title transfer,

1.4.          Commodity finance through payments of Egyptian products in advance against their future delivery (as in Salam and Istisna'),

1.5.          BOT finance of infrastructure projects,

1.6.          Donors’ subscription to Sukuk issued to finance development projects  

2. The worst type of aid provision is through conventional loans.  This type of aid involves a great deal of information asymmetry, leading to serious risks of adverse selection and moral hazard.  This has been the dominant type of providing finance to developing economies, that has been criticized with ineffectiveness and often ending with debt crises.

Adding to the above, we must note that Egypt does not need aid pledges or a mere declaration of development assistance programs.  It requires that aid should be passed through the quickest way and that filters into increased employment and provision of basic needs. Examples of this are:

1. Provision of low-cost housing to the youth,

2. Provision of SME finance for enterprises owned and managed by young people,

3. Establishment of manufacturing projects whose output can be readily exported to the Gulf.