Egypt in Transition
Jeremy M. Sharp
Specialist in Middle Eastern Affairs
June 17, 2011
Congressional Research Service
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www.crs.gov
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CRS Report for Congress
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repared for Members and Committees of Congress
Egypt in Transition
Summary
On February 11, 2011, President Hosni Mubarak resigned from the presidency after 29 years in
power. For 18 days, a popular peaceful uprising spread across Egypt and ultimately forced
Mubarak to cede power to the military. How Egypt transitions to a more democratic system in the
months ahead will have major implications for U.S. foreign policy in the Middle East and for
other countries in the region ruled by monarchs and dictators.
This report provides a brief overview of the transition underway and information on U.S. foreign
aid to Egypt. U.S. policy toward Egypt has long been framed as an investment in regional
stability, built primarily on long-running military cooperation and sustaining the March 1979
Egyptian-Israeli peace treaty. Successive U.S. Administrations have viewed Egypt’s government
as a moderating influence in the Middle East. U.S. policy makers are now grappling with
complex questions about the future of U.S.-Egypt relations and these debates are likely to
influence consideration of appropriations and authorization legislation in the 112th Congress. The
United States has provided Egypt with an annual average of $2 billion in economic and military
foreign assistance since 1979. For FY2012, the Obama Administration has requested $1.551
billion in total aid to Egypt.
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Contents
Egypt in Transition...................................................................................................................... 1
Egypt After Mubarak: New Faces, Old Problems................................................................... 1
The Transition: From Military Rule to Elections.................................................................... 2
A More Independent Egyptian Foreign Policy ....................................................................... 5
The Economy........................................................................................................................ 6
U.S. Policy, Aid, and International Financial Support ............................................................ 6
U.S. Foreign Assistance to Egypt ................................................................................................ 8
Overview .............................................................................................................................. 8
Economic Aid ....................................................................................................................... 8
Funding for Democracy Promotion ....................................................................................... 9
U.S.-Egyptian Science, Business, and Technological Cooperation ....................................... 11
Military Aid ........................................................................................................................ 12
Recent Arms Sales Notifications ......................................................................................... 13
U.S.-Egyptian Trade............................................................................................................ 13
Figures
Figure 1. Map of Egypt ............................................................................................................... 2
Tables
Table 1. U.S. Direct Funding to International and Egyptian NGOs............................................. 11
Table 2. Recent U.S. Foreign Assistance to Egypt...................................................................... 14
Table 3. U.S. Foreign Assistance to Egypt, 1946-1997............................................................... 15
Contacts
Author Contact Information ...................................................................................................... 18
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Egypt in Transition
Egypt in Transition
Egypt is undergoing a historic political transition after a popular revolution which began on
January 25 forced the resignation of former President Hosni Mubarak on February 11. The
Supreme Council of the Egyptian Armed Forces (SCAF) has taken temporary control of the day-
to-day affairs of the country and is overseeing a delicate transition to democracy, driven largely
by the demands of the youth protest movement.
Egypt After Mubarak: New Faces, Old Problems
Egypt’s “January 25 Revolution” has not only overthrown a government, but it has remarkably
reinvigorated Egyptian political life. Numerous press reports over the last six months have
recounted feelings of popular empowerment and pride inspired by the exploits of Egypt’s young
protestors. Even after former President Hosni Mubarak’s resignation on February 11, protests in
Cairo’s Tahrir Square have continued on issues ranging from women’s rights to fair wages.
Pamphlets, public service ads, bumper stickers, and posters litter Cairo with the platforms of new
political parties and messages urging fellow citizens to “change.” For the first time, public polling
on most sensitive issues can be conducted in Egypt in a relatively free environment. One U.S.
State Department opinion poll in the spring of 2011 revealed that 70% of Egyptians say their
country is generally better off now compared to before the uprising, a complete reversal from pre-
revolution Egypt when 71% said Egypt was headed in the wrong direction. Optimism has been in
short supply for decades, and the revolution has unleashed a participatory desire that had been
pent up during the stagnant years of Mubarak rule.
However, rapid political change also has heightened concerns about many of Egypt’s
longstanding social and economic problems, and some of those problems have been exacerbated
in the chaos of the country’s post revolutionary environment. The economy is now contracting,
the government is hemorrhaging foreign exchange, and investment in Egypt has dropped
precipitously. Crime has risen in many areas due to the dissolution of police forces, many of
whom were reviled by ordinary Egyptians but are now needed to restore order. Religious
conservatism and sectarian tension also has grown, and the country has experienced several
deadly Coptic-Muslim clashes since February 11.
Though many Egyptians fear instability, others see a revolution that is incomplete in light of
continued military rule. Others experts argue that Egypt’s transition is underway, but may take
years if not decades. Pessimists forecast that Egypt’s emerging democracy will crumble under the
weight of its socio-economic problems, believing that future governments will be burdened by
high debt, a bloated welfare state and military, and a largely uneducated, unproductive workforce.
On the other hand, optimists charge that though it may take time, an Egyptian democracy will
create the necessary foundation for growth and that one day, the country may truly be considered
a regional power and not just by Egyptians themselves. Optimists commonly point to Turkey, a
Muslim-majority nation with a robust economy ruled by a moderate Islamist party, as a possible
model for Egypt to emulate.
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Figure 1. Map of Egypt
The Transition: From Military Rule to Elections
The Supreme Council of the Armed Forces (SCAF)
Over the course of the last six months, Egyptian protestors and the country’s Supreme Council of
the Armed Forces (SCAF) which claims to work on their behalf, have overturned former
President Hosni Mubarak’s entire political order. The SCAF is a 20-man military council and has
made decisions by decree in consultation with various political forces, and some believe in fear of
instigating further public unrest. In order to appease public opinion and Egyptians’ desire for
justice, the SCAF has prosecuted many members of the old regime. The former president himself
is now under house arrest and will soon stand trial for the pre-meditated killing of nearly 846
Egyptians who died during the early 2011 uprising. Former cabinet ministers, businessmen, and
Mubarak family members also have been arrested and await trial. The SCAF also has dissolved
the former ruling National Democratic Party (NDP) in order to allay fears of a counter revolution
by former regime allies. The Protestor-Military dynamic, though it has been rife with discord and,
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at times, mistrust, has nonetheless worked to rid the country of many of the symbols of the former
regime.
Still, by its own admission, the SCAF has emphasized that it has no desire to rule Egypt
permanently, as some officers may fear that public good will may turn against them the longer
they remain in control. The SCAF also has emphasized that Egypt will adhere to all international
treaties and obligations, a reference to its plans to uphold the 1979 peace treaty with Israel. SCAF
spokespeople have reiterated that the military has no plans to field a favored candidate for
presidential elections. Critics charge that though the SCAF has listened to demonstrator demands,
it has drawn its own red lines over its survival as a favored institution and has no interest in
transparency over its budget and vast economic interests. The SCAF has warned news
organizations that it is illegal to criticize the military in the press. A military court sentenced a
blogger (Maikel Nabil) to three years in prison for insulting the military. Others have criticized
the SCAF over press reports that female detainees in military custody were subject to “virginity
tests” by doctors. Military police occasionally have clashed with protestors leading to one death
on April 8 and hundreds of arrests.
Amidst the contentious but peaceful wrangling over Egypt’s future, the SCAF is working to
transition Egypt to a democracy by
• Dismantling the Mubarak Regime. Since February 11, the SCAF has shuffled
the cabinet twice, most recently in early March when it fired three holdovers
from the Mubarak era: Prime Minister Ahmed Shafiq, Foreign Minister Ahmed
Aboul Gheit, and Justice Minister Mamdouh Marei. In addition, a number of
former regime officials and businessmen have been either dismissed, arrested, or
placed under investigation, including Habib al Adly, the former interior minister,
and Ahmed Ezz, the former chairman of the national assembly’s budget
committee and the owner of Ezz Steel. President Mubarak is under house arrest,
and Egypt’s Ministry of Justice is investigating his family’s finances. Although
the former president has been confined to Sharm el-Sheikh Hospital due to
continued reports of ill health, his sons have been detained and interrogated in
Egypt’s notorious Tora prison, an ironic twist of fate due to the facility’s previous
role in incarcerating democracy activists and dissidents.1 To date, all of the
Mubaraks’ identifiable assets inside Egypt have been frozen and some of their
foreign accounts also have been frozen. In early May 2011, Swiss authorities
announced that over $460 million in frozen bank deposits has been identified as
belonging to the Mubarak family. The SCAF also has pledged to dismantle and
then reconstitute the reviled state security force run by the Ministry of the
Interior. Formerly, this agency had been involved in suppressing political dissent.
In its place, a new agency would focus only on countering domestic terrorism
threats, though many employees of the previous agency would be retained.
• Amending the Constitution. On March 19, the country held a national
referendum on the passage of eight amendments to the constitution that would,
among other things, institute presidential term limits, restore judicial oversight of
elections, and—perhaps most importantly—ease the eligibility requirements for
presidential candidacy. Despite protestors calling for a “no” vote, the referendum
1 Other former regime officials jailed at Tora Prison include Ahmed Nazif (former PM), Habib el Adly (former Min of
Interior), Ahmed Ezz (NDP official), Safwat el Sherif (Head of NDP), and Zakariya Azmi (Mubarak’s Chief of Staff).
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passed with 77.2% approval amidst a 41% voter turnout, the highest on record in
recent years.
• Holding Elections. The SCAF has scheduled parliamentary elections for
September 2011. Elections had been previously set for June, and the SCAF may
have moved the timetable back to give Egypt’s young revolutionaries more time
to organize politically. No date has been set for presidential elections. Some
Egyptians, including Coptic Christians, want to rewrite the constitution entirely
before holding any election, charging that there are still many non-democratic
provisions that could be abused by a democratically elected government.2 On
March 28, the SCAF announced that the Emergency Law will be lifted before
parliamentary elections are held. It also issued a decree easing conditions for the
formation of political parties. Under the decree, new parties must have at least
5,000 members across 10 provinces, with at least 300 members in each province,
in order to gain recognition.3
For a country that has experienced political stasis for several decades, events over the past two
months have been unprecedented, and it appears that while the transition will be swift, the SCAF
has somewhat compromised in recent weeks with the protest movement by allowing for more
time before holding elections. The Muslim Brotherhood actively campaigned for a “yes” vote
prior to the March 19 referendum, and its success may have helped to slow the process.
Political Parties, Parliamentary, and Presidential Elections
An estimated two dozen parties have been formed since February 11, including the recently
recognized Freedom and Justice Party (FJP), the party of the Muslim Brotherhood. The FJP has
an Egyptian Copt, Rafiq Habib, as its vice president and plans to contest between 45-49% of
parliamentary seats. According to a public opinion poll conducted by the Pew Research Center,
only 17 % of respondents (surveyed 1,000) said they would like to see the Muslim Brotherhood
lead the next government, though the same poll revealed that 50 % of respondents also said it was
“very important” for religious parties to be part of a future government and 37% have a “very
favorable” view of the Muslim Brotherhood. Other notable parties include the Free Egyptians
Party (FEP), founded by Egyptian billionaire businessman and Coptic Christian Naguib Sawiris,
and the Al Adl Party (Justice) party founded by supporters of Egyptian activist and former
International Atomic Energy Association Chief Mohammad El Baradei. Most analysts anticipate
that over the course of the next few months, parties with similar platforms will either merge or
form coalitions, particularly secular parties wishing to compensate for their relative anonymity
and organizational weakness and counter the influence of the Muslim Brotherhood. In mid June,
the FJP surprised many by forming a coalition with the Wafd Party, Egypt’s oldest nationalist
party and sometimes political rival of the Muslim Brotherhood.
2 Some Coptic Christians want to change Article 2, which states that the official religion of Egypt is Islam, and the
principles of Sharia (Islamic law) are the main source of legislation.
3 Under the old political parties law, a committee comprised of pro-Mubarak allies subjectively determined which new
parties to legalize. The new law would, according to one report, “give citizens the right to establish parties by notifying
a newly established judicial committee. A party would be recognized 30 days after sending the notification, if the
committee has not issued objections. There are restrictions, though. The council banned the formation of political
parties on religious grounds and those discriminating against citizens based on race or faith.” See, “Egypt to Lift
Emergency Law Before Vote for Parliament,” Washington Post, March 29, 2011.
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The composition of parliament will be crucial due to its lead role in writing a new constitution
(most likely starting in 2012). The outcome of the election will be determined in part by the type
of electoral law adopted by the SCAF. A draft law circulated in May featured a mixed individual
candidate (66% of seats) and party list system (33% of seats) and retained an old provision of
Egyptian law setting aside half of all seats for “workers and farmers,” a vestige of Egyptian
socialism that helps tribal leaders and rural landowning families retain influence in Cairo and
dispense patronage back home. Many of these regional figures were supporters of the NDP, and,
under the draft law, could enjoy success as individual independent candidates, limiting the
number of seats secured by parties.
The Egyptian presidential election will follow parliamentary elections and it has yet to be
officially scheduled. To date, possible candidates include Amr Moussa, a former foreign minister
and head of the Arab League, Ayman Nour, the runner up to former President Hosni Mubarak in
2005 before he was imprisoned by Mubarak for three and half years, Mohammad El Baradei who
is rated less favorably than other potential candidates possibly due to his lack of a mass
constituency, Ms. Bothaina Kamel, a television anchor and activist who is the first woman to run
for president, and Dr. Abdel Moneim Abul Fotouh, a moderate leader in the Muslim Brotherhood
who has rebuffed calls from his organization to not run and plans on running as an independent
candidate. Some observers suggest that Abul Fotouh commands the support of many younger
Muslim Brotherhood leaders who espouse more liberal views than their elders, though other
experts suggest that he only commands elite support.
A More Independent Egyptian Foreign Policy
In order to align the country’s foreign policy more closely to public opinion during this delicate
transition, the SCAF and Egyptian Foreign Ministry have charted a somewhat more
confrontational regional policy toward Israel. The SCAF and some Egyptian officials underscore
that Egypt has no intention of revisiting or rescinding the peace treaty with Israel. Nevertheless,
in recent months, Egyptian officials have abandoned the Mubarak regime’s aggressive stance
toward Hamas, a move that enabled the Egyptian mediators to reengage Palestinian factions in
unity talks and broker a settlement. This breakthrough also led Egypt and Hamas to reach a new
border agreement at the Rafah crossing. Though various media reports indicated that the Rafah
border crossing would be completely open to Gazans, subsequent reports suggest that while the
terms of the opening have been liberalized, some Egyptian restrictions remain, such as requiring
Gazan men between ages 18 and 40 who wish to cross to obtain security clearances beforehand
and limiting the daily passenger traffic to between 500 and 550 people. Although commercial
goods still cannot enter Gaza from Egypt, Israelis officials have expressed consternation over the
change in Egyptian policy after having benefitted from several years of Egyptian cooperation in
isolating and containing Hamas by tacitly enforcing Israel’s blockade of Gaza. Israelis remain
concerned that smuggled weapons will continue to flow into Gaza from the Sinai Peninsula and
beyond.
In addition to smuggling weapons, Bedouin Arabs in the Sinai Peninsula also are believed to be
behind several acts of sabotage to a gas pipeline running from Egypt to Israel and Jordan. Since
the revolution, it has been bombed three times. The supply of Egyptian gas to Israel was a
sensitive issue even before the revolution, though since then Egyptian businessmen with close ties
to Mubarak, including the former energy minister, have been accused of selling Egyptian gas to
Israel at steep discounts, costing the treasury approximately $714 million in lost revenue had the
gas been sold at market prices. Egyptian authorities continue to investigate the deal, which may
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become a campaign issue in the Egypt’s upcoming presidential election, as some candidates such
as Amr Moussa have expressed their opposition to selling Israel natural gas.
The Economy
Egypt’s economy has contracted since unrest began in January 2011, leading some Egyptians to
refer to the toppling of Mubarak as the “Revolution of the Hungry.” Net international reserves
have fallen from $36 billion in December to $28 billion in April 2011. The economy is forecasted
to grow less than 2% this year. Tourism is down 40% in 2011, and many factories have stopped
producing goods due to worker strikes. Government deficit spending (nearly 10% of GDP and
climbing) has increased in order to support the lower and middle classes by raising subsidies due
to higher commodity prices and raising the minimum wage and compensation for state
employees. The Finance Ministry is seeking between $10 and $12 billion through June 2012 from
the international community in order to address its balance of payments gap. A spring diesel
shortage may produce food shortages during the summer months, and electricity shortages that
grabbed headlines in 2010 are expected to recur.
Experts believe that post revolutionary Egypt will reflect the population’s long-standing rejection
of unfettered capitalism, as neoliberal economic policies had become synonymous with
corruption and the crony capitalism that flourished during the Mubarak era. Revolutionary
activists echoed popular criticism of the fact that politically well-connected persons often
received generous bank financing and reaped the rewards of privatization deals, foreign franchise
distribution rights, government contracts, and land deals. Nonetheless, few observers believe that
Egypt can afford to return to its socialist days, and leaders face the challenge of disentangling
liberalizing reforms from Mubarak-era corruption.
U.S. Policy, Aid, and International Financial Support
Between February and May 2011, U.S. policy toward post revolutionary Egypt was primarily
concerned with developing contacts with new political forces and working with the SCAF to
ensure that the transition struck a balance between the need for the military to quickly relinquish
power while at the same time provide adequate time for secular reformers and young
revolutionaries to formally organize themselves politically in time for elections. The
Administration also announced that between $150 and $165 million in existing Economic
Support Funds (ESF) would be reprogrammed to support, among other things, economic recovery
and democracy promotion to support nascent political parties and new elections. In addition, the
U.S Export-Import Bank has approved $80 million in insurance cover to support letters of credit
issued by Egyptian financial institutions. The Administration also has instructed the Overseas
Private Investment Corporation (OPIC) to provide financial support to encourage private sector
investment in Egypt.
On May 19 at his address on U.S. policy toward the Middle East at the State Department,
President Obama announced a new package of aid to Egypt which included $1 billion in bilateral
debt relief4, and $1 billion in U.S.-backed loan guarantees. The President also promised to work
4 U.S. debt relief requires an act of Congress to pass, as it did when the United States forgave $6.7 billion in Egypt’s
military debt in gratitude for Egypt’s participation in Operation Desert Storm in 1990. Egypt’s debt to the United States
is approximately $3 billion. Debt service payments to the United States cost the Egyptian treasury an estimated $330 to
(continued...)
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with Congress to create a U.S.-Egyptian Enterprise Fund and to expand trade to the Middle East
region, possibly by expanding the Qualified Industrial Zone (QIZ) program that allows goods
produced in 13 industrial zones in Egypt to be shipped to the United States duty free.
Although the Egyptian government has expressed its gratitude for U.S. support, some analysts
and Egyptians believe that the Administration’s aid package for Egypt is insufficient based on
current need. According to Steven A. Cook, a senior fellow at the Council on Foreign Relations,
“This is obviously a very small amount.... But it’s what the political freight these days will bear.”
Some lawmakers have expressed hesitation over appropriating new funds for Egypt given overall
Congressional efforts to trim the deficit. Other Members have called for renewed negotiations for
a U.S.-Egyptian Free Trade Agreement. In Congress, Section 2123 of P.L. 112-10, the
Department of Defense and Full-Year Continuing Appropriations Act, 2011, stipulates that no
later than 45 days after the passage of the bill (the deadline was May 30), the Secretary of State
shall submit a report to the Committees on Appropriations detailing whether a transparent,
political transition is occurring in Egypt, if laws restricting human rights have been abrogated,
and legal and constitutional impediments to free and fair elections are being removed. Other bills
and resolutions concerning Egypt under congressional consideration are H.Res. 88 (commending
Egypt on the revolution), H.R. 1514 (Limiting aid to Egypt unless it is honoring its commitments
under the 1979 peace treaty), S. 618 (a bill to promote the strengthening of the private sector in
Egypt and Tunisia).5
Despite some criticism aimed at the United States for not allocating more resources toward
Egypt, U.S. officials have worked at the international level to garner support for Egypt. The
International Monetary Fund has indicated it would provide a $3 billion, 12 month standby
arrangement expected to be approved in mid-July. The World Bank has pledged up to $1 billion
in each of the next two years if the government meets certain economic reform conditions. The
Bank also may provide $2.5 billion in loans for development projects. Saudi Arabia has already
deposited $1 billion in the Central Bank of Egypt and has pledged an additional $3 billion, while
Qatar has promised to inject between $5 billion and $10 billion in various projects, though no
specific projects have been announced yet. The G8 countries also have promised loans through
development banks and have said after their latest meeting that they are willing to provide $5
billion for Egypt and through 2013.
(...continued)
$350 million per year. The country’s total external debt is $34.99 billion. Egypt pays the European Union
approximately $1billion a year for its debt service payment.
5 S. 618, a bill “To Promote the Strengthening of the Private Sector in Egypt and Tunisia” would, among other things,
establish an Egyptian-American Enterprise Fund to “promote policies and practices conducive to strengthening the
private sector in Egypt through measures including loans, microloans, equity investments, insurance, guarantees,
grants, feasibility studies, technical assistance, training for businesses receiving investment capital, and other
measures.”
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U.S. Foreign Assistance to Egypt
The following information is background on U.S. aid to Egypt before its recent revolution.
Overview
The revolution of January 2011 suggests that the terms of recent debate over U.S. assistance to
Egypt may change significantly in the coming months. Since 1979, Egypt has been the second-
largest recipient, after Israel, of U.S. foreign assistance. In FY2010, Egypt was the fifth-largest
aid recipient behind Afghanistan, Israel, Pakistan, and Haiti, respectively. In the past decade,
overall U.S. assistance to Egypt has declined from $2.1 billion in FY1998 to $1.55 billion in
FY2010 owing to a gradual reduction in economic aid. In July 2007, the Bush Administration
signed a 10-year Memorandum of Understanding (MOU) with Israel to increase U.S. military
assistance from $2.4 billion in FY2008 to over $3 billion by 2018. Egypt received no
corresponding increase in U.S. military aid; instead, the Bush Administration pledged to continue
to provide Egypt with $1.3 billion in military aid annually, the same amount it has received
annually since 1987. Unlike with Israel and Jordan, the Bush Administration did not sign a
bilateral MOU with the Egyptian government.6 Congress typically earmarks foreign assistance for
Egypt in the foreign operations appropriations bill. For FY2012, the Obama Administration has
requested $1.551 billion in total U.S. aid to Egypt.
Economic Aid
The United States has significantly reduced economic aid to Egypt over the last decade. There are
several reasons for the reduction in U.S. assistance. Overall, U.S. economic aid to Egypt has been
trending downward due to a 10-year agreement reached in the late 1990s known as the “Glide
Path Agreement.” In January 1998, Israeli officials negotiated with the United States to reduce
economic aid and increase military aid over a 10-year period. A 3:2 ratio that long prevailed in the
overall levels of U.S. aid to Israel and Egypt was applied to the reduction in economic aid ($60
million reduction for Israel and $40 million reduction for Egypt), but Egypt did not receive an
increase in military assistance. Thus, the United States reduced ESF aid to Egypt from $815
million in FY1998 to $411 million in FY2008.7 For FY2012, the Administration is requesting
$250 million in ESF for Egypt.
6 A year after the 2007 U.S.-Israel Memorandum of Understanding (MOU), the U.S. and Jordanian governments
reached an agreement whereby the United States will provide a total of $660 million in annual foreign assistance to
Jordan over a five-year period. Under the terms their non-binding MOU, this first-of-its-kind deal commits the United
States, subject to future congressional appropriations and availability of funds, to providing Jordan with $360 million
per year in Economic Support Funds (ESF) and $300 million per year in Foreign Military Financing (FMF).
7 In FY2003, Egypt, along with Israel and several other governments in the region, received supplemental assistance as
part of the FY2003 Iraq Emergency Supplemental Appropriations Act (P.L. 108-11). It included $300 million in ESF
for Egypt, which could have been used to cover the costs of up to $2 billion in loan guarantees. The loan guarantees
were to be issued over three years.
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Funding for Democracy Promotion
Each year, a portion of USAID-managed economic aid is spent on democracy promotion
programs in Egypt, a policy that has been a lightning rod for controversy over the last seven
years. On principle, the Mubarak government had rejected U.S. assistance for democracy
promotion activities, though it had grudgingly accepted a certain degree of programming. On the
other hand, democracy activists believe that the U.S. government, particularly during the Obama
Administration and before the revolution, had not been aggressive enough in supporting political
reform in Egypt.
The degree of U.S. direct support for civil society groups had been a major issue. The Mubarak
government had staunchly opposed foreign support to independent civic groups that demand
government accountability, as well as civic groups that have not received government approval.
During the Bush Administration, policymakers and Members of Congress directed some amounts
of Economic Support Funds toward direct support to Egyptian non-governmental organizations
(NGOs). However, some experts note that only a small proportion of USAID’s democracy and
governance (D&G) funds are spent on independent Egyptian groups and an even smaller
proportion to groups that do not receive approval from the Egyptian government. The vast
majority of USAID D&G assistance goes to Government of Egypt-approved consensual,
government-to-government projects.8
Most importantly, in FY2005, Congress directed that “democracy and governance activities shall
not be subject to the prior approval of the GoE [government of Egypt],” language which remained
in annual foreign operations appropriations legislation until FY2009 (see below).9 Egypt claims
that U.S. assistance programs must be jointly negotiated and cannot be unilaterally dictated by the
United States. P.L. 111-117, Consolidated Appropriations Act, FY2010, contains general
legislative language on the use of U.S. funds to NGOs, stating in section 7034:
With respect to the provision of assistance for democracy, human rights and governance
activities in this Act, the organizations implementing such assistance and the specific nature
of that assistance shall not be subject to the prior approval by the government of any foreign
country.10
As overall ESF aid to Egypt has decreased, so too has U.S. democracy assistance. For FY2009,
the Bush Administration unilaterally cut overall economic aid to Egypt by more than half,
requesting $200 million in ESF. Therefore, because U.S. economic assistance is divided among
several sectors (health, education, economic development, and democracy promotion), fewer
funds were available in FY2009 for D&G aid ($20 million instead of previous appropriations of
8 CRS conversation with Tamara Cofman Wittes, Director, Middle East Democracy and Development Project,
Brookings Institution, September 1, 2009.
9 Congress sought to ensure that U.S. foreign assistance for Egypt was being appropriately used to promote reform. In
conference report (H.Rept. 108-792) language accompanying P.L. 108-447, the FY2005 Consolidated Appropriations
Act, conferees specified that “democracy and governance activities shall not be subject to the prior approval of the GoE
[government of Egypt]. The managers intend this language to include NGOs and other segments of civil society that
may not be registered with, or officially recognized by, the GoE. However, the managers understand that the GoE
should be kept informed of funding provided pursuant to these activities.”
10 P.L. 111-117. The conference report accompanying the act notes, “the requirements of section 7034(m)(4) of this Act
shall apply with respect to the provision of assistance to Egyptian NGOs.”
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up to $50 million). P.L. 111-117, the Consolidated Appropriations Act, FY2010, provided $25
million in economic aid for democracy promotion (or 10% of total economic aid).
Perhaps in order to ease tension with the Egyptian government, the Obama Administration has
reduced funding for U.S.-based NGOs operating in Egypt while increasing funding for state-
approved and unregistered Egyptian NGOs (see Table 1 below). Since FY2009, the
Administration has used other State Department aid accounts, such as the Middle East Partnership
Initiative (MEPI) and the Human Rights and Democracy Fund (HRDF), to support Egyptian and
international NGOs. In October 2009, USAID’s Inspector General issued an audit of the agency’s
democracy and governance activities in Egypt. Among other findings, the audit concluded that
The impact of USAID/Egypt’s democracy and governance activities has been limited based
on the programs reviewed. In published reports, independent nongovernmental organizations
ranked Egypt unfavorably in indexes of media freedom, corruption, civil liberties, political
rights, and democracy. Egypt’s ranking remained unchanged or declined for the past 2 years,
and the impact of USAID/Egypt’s democracy and governance programs was unnoticeable in
indexes (sic) describing the country’s democratic environment…. The Government of Egypt
signed a bilateral agreement to support democracy and governance activities (page 5), but it
has shown reluctance to support many of USAID’s democracy and governance programs and
has impeded implementers’ activities. Despite the spirit with which the U.S. Congress
espoused the civil society direct grants program, the Government of Egypt’s lack of
cooperation hindered implementers’ efforts to begin projects and activities through delays
and cancellations.11
11 USAID, Audit of USAID/Egypt’s Democracy and Governance Activities (Audit Report No. 6-263-10-001-P), October
27, 2009.
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Table 1. U.S. Direct Funding to International and Egyptian NGOs
(Amounts in U.S. dollars)
FY2008 FY2009 FY2010
FY2011
Request
Democracy and
Governance
Total
54,850,315 23,539,643 29,000,000 25,000,000
USAID
54,800,000 20,000,000 25,000,000 25,000,000
DRL
0 2,057,000 2,000,000
n/a
MEPI
50,315 1,482,643 2,000,000
n/a
Civil Society
Total
27,900,315 9,539,643 25,000,000 21,000,000
USAID
27,850,000 6,000,000 21,000,000 21,000,000
DRL
0 2,057,000 2,000,000
n/a
MEPI
50,315 1,482,643 2,000,000
n/a
Egyptian
unregistered
orgs
925,286 1,482,643 2,000,000
n/a
USAID
925,286 0 0
n/a
MEPI
0 1,482,643 2,000,000
n/a
Egyptian
registered orgs
5,669,529
5,000,000
10,000,000
n/a
USAID
5,619,214
5,000,000
10,000,000
n/a
MEPI
50,315 0 0
U.S. registered
groups
5,801,846 1,000,000 1,000,000
TBD
USAID
5,801,846 1,000,000 1,000,000
U.S.
unregistered
groups
15,503,654 2,057,000 2,000,000
TBD
USAID 15,503,654 0 0
Source: U.S. State Department, Bureau of Near Eastern Affairs.
U.S.-Egyptian Science, Business, and Technological Cooperation
President Obama’s 2009 speech in Cairo envisioned greater U.S. collaboration with Middle
Eastern and Muslim-majority nations. As a result, the Administration has created several new
small-scale initiatives, dubbed the Cairo Initiatives, to promote science, business, and technical
cooperation with certain countries in the region, notably Egypt. In December 2010, the United
States launched the President’s Global Innovation through Science and Technology (GIST)
program in Alexandria, Egypt. Egypt also is a significant participant in the Administration’s
Global Entrepreneurship program (GEP), a USAID-funded program designed to assist
entrepreneurs in Muslim communities around the world. Several GEP pilot programs have been
launched in Egypt to train entrepreneurs and assist them with access to foreign investment. In
January 2011, a GEP delegation traveled to Egypt to meet with Egyptian businessmen and learn
of new investment opportunities. According to the U.S. State Department’s Senior Advisor for
Congressional Research Service
11
Egypt in Transition
Global Entrepreneurship Steven Koltai, “regional investments in economic reform and human
and capital infrastructure in Egypt provide a strong foundation for entrepreneurs and investors,
both local and international.”
In 2010, the Overseas Private Investment Corporation (OPIC) invested $100 million in a fund
managed by a subsidiary of Egyptian private equity firm Citadel Capital. The investment was
touted by the Administration as part of President Obama’s outreach to the Muslim world and U.S.
efforts to spur entrepreneurship.
In addition, the Administration has proclaimed that 2011 is the year of U.S.-Egypt science. One of
President Obama’s science envoys, Dr. Ahmed Zewail, a Nobel prize-winning Egyptian
American, has visited Egypt several times. In May 2010, the United States announced that the
U.S.-Egypt Science and Technology Joint Fund will double its annual grants (from $4 million to
$8 million) for Egyptian and American scientific collaboration.
Military Aid
The Administration has requested $1.3 billion in FMF for Egypt in FY2012. FMF aid to Egypt is
divided into three general categories: (1) acquisitions, (2) upgrades to existing equipment, and (3)
follow-on support/maintenance contracts.12 According to U.S. and Egyptian defense officials,
approximately 30% of annual FMF aid to Egypt is spent on new weapons systems, as Egypt’s
defense modernization plan is designed to gradually replace most of Egypt’s older Soviet
weaponry with U.S. equipment.13 That figure is expected to decline over the long term due to the
rising costs associated with follow-on maintenance contracts. Egyptian military officials have
repeatedly sought additional FMF funds to offset the escalating costs of follow-on support. They
point out that as costs rise, static aid appropriations amount to a reduction in net assistance.
U.S.-Egyptian coproduction of the M1A1 Abrams Battle tank is one of the cornerstones of U.S.
military assistance to Egypt. A coproduction program began in 1988. Egypt plans to acquire a
total of 1,200 tanks. Under the terms of the program, a percentage of the tank’s components are
manufactured in Egypt at a facility on the outskirts of Cairo and the remaining parts are produced
in the United States and then shipped to Egypt for final assembly. General Dynamics of Sterling
Heights, MI, is the prime contractor for the program. Although there are no verifiable figures on
total Egyptian military spending, it is estimated that U.S. military aid covers as much as 80% of
the Defense Ministry’s weapons procurement costs.14
Egypt also receives Excess Defense Articles (EDA) worth hundreds of millions of dollars
annually from the Pentagon.15 Egyptian officers participate in the International Military and
12 According to U.S. defense officials, Egypt only allocates the minimum amount of FMF funds necessary for follow-
on maintenance, resulting in inadequate support for weapon system sustainment.
13 According to a 2006 Government Accountability Office report, over the life of Egypt’s FMF program, through
August 2005, Egypt had purchased 36 Apache helicopters, 220 F-16 aircraft, 880 M1A1 tanks, and the accompanying
training and maintenance to support these systems, among other items. See Government Accountability Office,
“Security Assistance: State and DOD Need to Assess How the Foreign Military Financing Program for Egypt Achieves
U.S. Foreign Policy and Security Goals.,” GAO-06-437, April 2006.
14 According to one source, U.S. military assistance pays for about a third of Egypt’s overall defense budget each year.
See, “Three Decades of Weapons, Training for Egypt Keep U.S. in Loop,” Bloomberg, February 2, 2011.
15 According to the Defense Security Cooperation Agency (DSCA), past EDA sales and grant transfers have included
two PERRY class and two KNOX frigates, numerous HAWK parts, mine rakes, helicopter spare parts, assorted
(continued...)
Congressional Research Service
12
Egypt in Transition
Education Training (IMET) program16 ($1.4 million requested for FY2011) in order to facilitate
U.S.-Egyptian military cooperation over the long term. IMET assistance makes Egypt eligible to
purchase training at a reduced rate. Bright Star is a multinational training exercise co-hosted by
the United States and Egypt that helps foster the interoperability of U.S. and Egyptian forces and
provides specialized training opportunities for U.S. Central Command Forces (CENTCOM) in
the Middle East. Eagle Salute is a U.S.-Egyptian joint maritime training exercise conducted
annually in the Red Sea.
In addition to large amounts of annual U.S. military assistance, Egypt benefits from certain aid
provisions that are available to only a few other countries. Since 2000, Egypt’s FMF funds have
been deposited in an interest bearing account in the Federal Reserve Bank of New York and have
remained there until they are obligated. By law (P.L. 106-280), Congress must be notified if any
of the interest accrued in this account is obligated. Most importantly, Egypt is allowed to set aside
FMF funds for current year payments only, rather than set aside the full amount needed to meet
the full cost of multi-year purchases. Cash flow financing allows Egypt to negotiate major arms
purchases with U.S. defense suppliers.
Recent Arms Sales Notifications
In FY2010, the Defense Security Cooperation Agency (DSCA) notified Congress of the
following proposed arms sales to Egypt using FMF funds:
• July 2, 2010—40 Skyguard AMOUN Solid-State Transmitters to support the
upgrade of the Skyguard-SPARROW Launcher/Illuminator System; prime
contractor is Raytheon Integrated Defense Systems in Tewksbury, MA; estimated
value: $77 million.
• July 2, 2010—Continuation of technical services in support of four OLIVER
HAZARD PERRY and two KNOX CLASS Frigates; prime contractor is VSE
Global in Alexandria, VA; estimated value: $210 million.
U.S.-Egyptian Trade
Egypt is the 46th-largest trading partner of the United States, which has an annual trade surplus
with Egypt amounting to $4.5 billion in 2010. The United States is Egypt’s largest bilateral
trading partner. Egypt is one of the largest single markets worldwide for American wheat and
corn and is a significant importer of other agricultural commodities, machinery, and equipment.
The United States also is the second-largest foreign investor in Egypt, primarily in the oil and gas
sector. Since the mid-1990s, Egyptian officials have sought to negotiate a Free Trade Agreement
(FTA) with the United States, claiming that an Egyptian-American FTA could significantly boost
Egypt’s economy. However, due to an array of concerns both Egypt-specific (human rights,
intellectual property) and macroeconomic, an Egyptian-American FTA has not moved forward.
(...continued)
armored vehicles (M60 tanks and M113 APCs) and various types of munitions.
16 Egyptian officers participating in IMET study and train at the Naval War College in Newport, Rhode Island, and
National Defense University at Fort McNair in Washington, DC.
Congressional Research Service
13
Egypt in Transition
In 1996, Congress authorized the creation of Qualified Industrial Zones (QIZ) in order to entitle
goods jointly produced by Israel and either Jordan or Egypt to enter the United States duty free.
In December 2004, Egypt finally reached an agreement with Israel to designate several QIZs in
Egypt under the mandate of the U.S.-Israeli Free Trade Agreement. Goods produced in Egyptian
QIZs allow Egyptian-made products to be exported to the United States duty-free if the products
contain at least 10.5% input from Israel. Egypt would like to see this percentage reduced to
around 8%, which is the case with the U.S.-Jordanian-Israeli QIZ agreement. Most products
exported from Egyptian QIZs are textiles, and products manufactured in QIZs now account for
one-third of Egyptian exports to the United States.
Table 2. Recent U.S. Foreign Assistance to Egypt
($ in millions)
Fiscal Year
Economic
Military
IMET
Total
1948-1997 23,288.6 22,353.5 27.3
45,669.4
1998 815.0
1,300.0
1.0
2,116.0
1999 775.0
1,300.0
1.0
2,076.0
2000 727.3
1,300.0
1.0
2,028.3
2001 695.0
1,300.0
1.0
1,996.0
2002 655.0
1,300.0
1.0
1,956.0
2003 911.0
1,300.0
1.2
2,212.2
2004 571.6
1,292.3
1.4
1,865.3
2005 530.7
1,289.6
1.2
1,821.5
2006 490.0
1,287.0
1.2
1,778.2
2007 450.0
1,300.0
1.3
1,751.3
2008 411.6
1,289.4
1.2
1,702.2
2009 250.0
1,300.0
1.3
1,551.3
2010 250.0
1,300.0
1.9
1,551.9
2011 Request
250.0
1,300.0
1.4
1,551.4
Total 30,820.8
39,211.8
43.0
70,075.6
Congressional Research Service
14
Table 3. U.S. Foreign Assistance to Egypt, 1946-1997
(millions of dollars)
Misc.
Military
Military
I.M.E.T
Economic
D.A.
ESF
Year Total Loan
Grant
Grant
Grant D.A.
Loan Grant
ESF Loan
Grant
P.L. 480 I
P.L. 480 II
9.3 Surplus
1946 9.6 — — —
0.3
— — — — —
—
UNWRA
1948 1.4 — — —
1.4
Surplus — — — — —
—
1951
0.1 — — —
0.1 Tech
Asst
— — — — —
—
1952 1.2 — — — — — 0.4 — — — 0.8
1953 12.9 — — — — —
12.9 — — —
—
1954 4.0 — — — — — 3.3 — — — 0.7
1955 66.3 — — — — 7.5
35.3 — — — 23.5
1956 33.3 — — — — — 2.6 — —
13.2 17.5
1957 1.0 — — — — — 0.7 — — — 0.3
1958 0.6 — — — — — 0.0 — — — 0.6
1959 44.8 — — — — — 2.0 — —
33.9 8.9
1960 65.9 — — — —
15.4 5.7 — —
36.6 8.2
1961 73.5 — — — — — 2.3 — —
48.6 22.6
1962 200.5 — — — —
20.0 2.2 20 —
114.0 44.3
1963 146.7 — — — —
36.3 2.3 10 —
78.5 19.6
1964 95.5 — — — — — 1.4 — —
85.2 8.9
1965 97.6 — — — — — 2.3 — —
84.9 10.4
1966 27.6 — — — — — 1.5 — —
16.4 9.7
1967 12.6 — — — — — 0.8 — — — 11.8
CRS-15
Misc.
Military
Military
I.M.E.T
Economic
D.A.
ESF
Year Total Loan
Grant
Grant
Grant D.A.
Loan Grant ESF
Loan Grant
P.L. 480 I
P.L. 480 II
1972 1.5 — — — — 1.5 — — — —
—
1973 0.8 — — — — — — — — — 0.8
1974 21.3 — — — — — — — 8.5 9.5 3.3
1975 370.1 — — — — — —
194.3
58.5
104.5 12.8
1976 464.3 — — — — — 5.4
150.0
102.8
201.7 4.4
TQ 552.5 — — — — — —
429.0
107.8
14.6 1.1
1977 907.8 — — — — — —
600.0
99.2
196.8 11.7
1978 943.2 — — 0.2
0.1
Narc. — —
617.4
133.3
179.7 12.5
1979 2,588.5
1,500 — 0.4 — — —
250.0
585.0
230.7 22.4
1980 1,167.3 — — 0.8 — — —
280.0
585.0
285.3 16.1
1981 1,681.2 550 — 0.8 — — —
70.0
759.0
272.5 28.9
1982 1,967.3 700
200.0 2.4 — — — —
771.0
262.0 31.9
1983 2332.0 900
425.0 1.9 — — — —
750.0
238.3 16.8
1984 2,470.8 900
465.0 1.7 — — — —
852.9
237.5 13.7
1985 2,468.7 —
1,175.0 1.7 — — — —
1,065.1
213.8 13.2
1986 2,539.1 —
1,244.1 1.7 — — — —
1,069.2
217.5 6.6
1987 2,317.0 —
1,300.0 1.8 — — — —
819.7
191.7 3.9
1988 2,174.9 —
1,300.0 1.5 — — — —
717.8
153.0 2.6
1989 2,269.6 —
1,300.0 1.5 — — 1.5 —
815.0
150.5 1.2
1990 2,397.4 —
1,294.4 1.6 — — — —
898.4
203.0
—
1991 2,300.2 —
1,300.0 1.9 — — — —
780.8
165.0 52.5
1992 2,235.1 —
1,300.0 1.8 — — — —
892.9
40.4
—
CRS-16
Misc.
Military
Military
I.M.E.T
Economic
D.A.
ESF
Year Total Loan
Grant
Grant
Grant D.A.
Loan Grant ESF
Loan Grant
P.L. 480 I
P.L. 480 II
1993 2,052.9 —
1,300.0 1.8 — — — —
747.0 — 4.1
1994 1,868.6 —
1,300.0 0.8 — — — —
561.6
35.0 6.2
1995 2,414.5 —
1,300.0 1.0 — — 0.2 —
1,113.3 —
—
1996 2,116.6 —
1,300.0 1.0 — — — —
815.0 — 0.6
1997 2,116.0 —
1,300.0 1.0 — — — —
815.0 —
—
Total
45,669.4 4,550
17,803.5
27.3.0 11.2 80.7 82.8
2,620.7
15,923.8
4,114.3 455.1
Notes: Totals may not add due to rounding. No U.S. aid programs for years 1947, 1949, 1950, 1968, 1969, 1970, and 1971. P.L. 480 II Grant for 1993 includes $2.1 million
in Sec. 416 food donations.
TQ = Transition Quarter; change from June to September fiscal year
* = less than $100,000
I.M.E.T. = International Military Education and Training
UNRWA = United Nations Relief and Works Agency
Surplus = Surplus Property
Tech. Asst. = Technical Assistance
Narc. = International Narcotics Control
D. A. = Development Assistance
ESF = Economic Support Funds
P.L. 480 I = Public Law 480 (Food for Peace), Title I Loan
P.L. 480 II = Public Law 480 (Food for Peace), Title II Grant
CRS-17
Egypt in Transition
Author Contact Information
Jeremy M. Sharp
Specialist in Middle Eastern Affairs
jsharp@crs.loc.gov, 7-8687
Congressional Research Service
18