Interesting piece by Barak Barfi is a research fellow at New America.
He points how Egypt has continued to live on foreign aid and its claims of being a regional power are just false claims:
Last week’s visit to Egypt by King Salman of Saudi Arabia resulted in 22 agreements, including a $22 billion oil deal to prop up Egypt’s moribund economy. But the lavish aid came at a price: Egypt had to relinquish two Red Sea islands ceded to it by Saudi Arabia in 1950. The move exposed the Egyptian leadership’s narrative that the country remains a major regional power as a lie. Indeed, Egypt cannot even handle domestic challenges posed by a rapidly growing population dependent on unaffordable subsidies – a situation that jihadists are exploiting with much success. How did the country reach this point?
When Muhammad Ali defeated the British in 1807, Egypt became the first Arab country to gain de facto independence. But Ali’s grandson, Ismail, squandered that independence with profligate spending, establishing a dependency on external assistance that persists to this day.
First, Ismail was forced to sell Egypt’s shares in the Suez Canal in 1875 to cover his budget deficits. When that proved insufficient to stop the fiscal hemorrhaging, European creditors established a committee to ensure payment. By 1877, more than 60% of Egypt’s revenue was servicing this debt. In 1882, the British took control of the country to protect their investments.
Egypt’s dependence on the British continued until Gamal Abdel-Nasser took power in 1952. He welcomed the Soviets, who provided sophisticated weapons in exchange for the same kinds of IOUs that doomed his predecessor. By the time Nasser died in 1970, the Soviet Navy had transformed the port of Alexandria into a virtual Soviet republic, with Russian spoken as a second language.
Meanwhile, Nasser pursued costly populist economic policies. He expanded the bureaucracy by offering every college graduate a government sinecure; today, 24% of the workforce is employed by the state. He introduced subsidies for commodities, from bread to oil, that amounted to 8.1% of GDP in 2013-2014. In 2014-2015, 81% of the budget went to debt service, subsidies, and wages, crowding out education and other investments essential to long-term growth.
All of this intensified Egypt’s need for foreign aid. And, in fact, despite Nasser’s pro-Soviet bent, Egypt was the largest recipient of American foreign aid until its disastrous war with Israel in 1967 froze relations. Unable to challenge Israel militarily, Soviet pilots engaged Israeli adversaries in dogfights over the Suez Canal. Nasser, who railed against imperialism and economic subservience, had delivered his country into vassalage.