Out for Summer, Episode 3: EIB Promoting development in Egypt - at what cost?

Suspended since the 2011 upheaval in the country, yesterday’s resumption of the EU-Egypt Association Council meetings confirmed the EU’s increasingly open approach towards Egypt. The Union considers the country both a strategic ally in the region and a key partner for trade and cooperation on security and migration issues.

However, while supporting the country’s democratic development sounded like a positive initiative in the aftermath of the revolution, tightening up the bond with the Egyptian regime now comes at increasingly higher costs, as fundamental freedoms face mounting obstacles in the country.

Part of the EU’s response to the Arab Springs was to push the EIB to be more active in the region, and to expand the mandate of the EBRD so that it can start operating in the Middle East and Northern Africa. In this context, both banks provided significant loans to Egypt since 2010, especially in the energy sector, and towards Small and Medium Enterprises (SMEs).

But have these investments actually fostered a sustainable development in the country? Hardly so.

But let us start from the beginning, looking especially at the EIB operations.

The EIB has stepped up its presence in Egypt in the past five years despite the increased crackdown on basic freedoms such as freedom of speech. The EIB has provided loans totalling more than EUR 7.1 billion since it started its operations in 1979, and more than EUR 2.6 billion since 2010. As is the case in most of the northern African countries where it operates, almost EUR 3 billion of EIB projects focused on the energy sector -- gas power stations, distribution lines and refineries.

Energy supply is indeed one of the crucial priorities for Egypt. To address shortages in the energy system, the approach of the Sisi government has been to invest in gas-powered power plants. But the viability of these new gas power stations is questionable given the massive reliance of the system on gas (close to 80 percent) and the controversies related to land compensation, water usage and the crackdown on freedom of speech, inhibiting people from expressing themselves freely.

Like other countries in the region, Egypt has huge potential for solar energy development – the current share in its energy production is a tiny 0.14 per cent. Yet, 97 percent of EIB investments between 2007 and 2014, accounting for over EUR 1.6 billion, have gone to fossil fuel projects, with no objectives being set for reducing the dependence on these sources and cutting emissions.

These choices, also reflected in the EIB’s loans, have been heavily criticised by civil society. Based on massive investments in energy companies mired in corruption and fostering dependency on international investors, the national investment plans, especially in energy and infrastructure, lack economic and social feasibility studies and are not backed by a comprehensive long-term strategy.

Nevertheless, a positive signal was finally sent by the Bank in March 2017 with the financing of a wind farm in the Gulf of Suez via a EUR 115 million loan.

The above subtitle is not just a conclusion of the situation in the Egyptian society, but is an actual statement made by Egypt’s president in May 2016.

The human rights situation in Egypt does not show signs of improvement, as the recent increase of enforced disappearances, extrajudicial executions, and widespread impunity for the security forces is far from encouraging. The latest NGO law threatens the existence of independent human rights groups and the crackdown on human rights defenders has seen increasing arrests and interrogation of journalists and peaceful activists.

The European Parliament has adopted several resolutions specifically condemning the crackdown on basic freedoms and the hesitancy of the Egyptian authorities to take concrete steps. A recent statement from the European External Action Service on Egypt describes a situation of concern for the EU:

“We are witnessing a mounting pressure on independent Egyptian civil society organisations, in particular human rights organisations and defenders. The recent imposition of travel bans, asset freezes and the summoning of human rights defenders are not in line with Egypt's commitments to promote and respect human rights and fundamental freedoms as guaranteed by its Constitution and enshrined in the EU-Egypt Association Agreement, which is the basis for our partnership.”

Thus, how does the EU’s friendly stance fit in this picture? The EIB’s approach has so far shown no particular attention to the respect of specific human rights standards in the projects it supports. Having often channelled its loans through credit lines managed by national banks and companies close to the regime – such as the EUR 500 million loan signed in October 2016 with the National Bank of Egypt for the support of the Egyptian private sector – the EIB loses direct supervision on how its funds are eventually spent.

Furthermore, the complete lack of space and instruments for civil society participation, along with the crackdown on activists and NGOs, means that people are not able to express themselves freely and organise to oppose or suggest alternatives to investment projects and priorities set out by the ruling class. In this sense, it is difficult to see how the EIB can ensure that even its basic accountability and participation tools do work to ensure ownership of projects and that they are not just a tick-the-box exercise for approving projects.

Such disconnection of investment projects from local realities at the expenses of vulnerable communities shows that the EIB urgently needs to develop a framework to conduct solid human rights assessments at project level – without relying solely on the greenlight given by the European Council or External Action Service. The EIB should improve its due diligence procedures to ensure that local communities are effectively consulted and that the projects it supports are developed in a transparent and participatory way.

Perpetuating dependency on fossil fuels, providing direct support to the regime and harming vulnerable communities, the bank’s current operations in Egypt feature a dangerous lack of legitimacy and risk fuelling a pattern of unsustainable investments. A sustainable energy strategy, together with a structured human rights due diligence and adequate public consultation, need to be integrated into the EIB’s approach to the country.