Foreign Aid to Egypt: A Domestic and International Vicious Cycle?

March 2025, Article written by Haya Abdelmeguid

Introduction

Since the signing of the Camp David Accords in 1978, the United States has provided Egypt with over $50 billion in military aid and $30 billion in economic support. [1] This substantial amount of aid—which places Egypt as the second biggest recipient of US military aid after Israel—reflects Egypt’s necessity as a playing piece for the US and its allies. Not only does Egypt play a central role in implementing the US’ geopolitical goals in the Middle East and North Africa (MENA), but it also holds significant economic influence, primarily through its strategic control over the Suez Canal, a crucial artery for global maritime trade. Egypt’s geopolitical importance is accentuated as the mediator of negotiations between Palestinian and Israeli representatives, especially after October 7th, 2023. While Egypt’s relationship with the US is strategic for both countries, at the grassroots level, it is not as good of a deal as it might be to the politicians. Being a recent BRICS member, Egypt remains a developing country grappling with corruption and economic failure. This essay examines the dangerous effects of foreign aid on developing nations through the lens of Egypt, a country where the distribution and utilization of aid are significantly influenced by its internal structural and governmental challenges. It argues that while foreign aid to Egypt is intended to foster development, it poses significant dangers to its social, economic, and political landscapes, exacerbating dependency, inequality, and governance issues. Firstly, this essay will analyze how aid to Egypt contributes to its current authoritarian structure under the current president, General Abdel Fattah El-Sisi, both politically and economically. Then, it will dive into the political leverage that aid provides, promoting neocolonial dynamics. This essay further dives into the reasons why under the Egyptian political structure today, aid fails to trickle down to those who truly need it. Finally, this essay provides an alternative solution to the pitfalls of aid in Egypt.

I. Aid to Egypt: An Additional Arm in the Authoritarian Arsenal

The positive impact of aid is highly contingent on the pre-existing political structure, according to multiple scholars. William Easterly, for instance, points out that aid ineffectiveness often stems from poor governance and inadequate policy frameworks within recipient countries, which are exacerbated by the conditions attached to the aid [2]. More specifically, he argues that aid tends to perpetuate government dependency on external aid, which enables regimes to defer essential reforms and maintain inefficient policies that serve immediate needs at the expense of long-term development [3]. The pattern discussed by Easterly is clearly visible in Egypt, where extensive U.S. military aid post-Camp David Accords has not only perpetuated but also entrenched pre-existing authoritarian structures, demonstrating how international aid, by aligning disproportionately with military rather than economic needs, can solidify rather than challenge entrenched power dynamics and delay democratic reforms. Since 1978, the United States has provided Egypt with over $50 billion in military and $30 billion in economic assistance [4]. This makes Egypt the second-largest recipient of military aid from the United States after Israel [5]. In the 2021 fiscal year, for example, U.S. aid to Egypt totaled approximately $1.4 billion, with $1.3 billion dedicated to military aid and $125 million allocated for general economic support [6]. This stark difference between aid allocation to the military compared to the overall economic state of Egypt shows the Egyptian military's beneficial position as the entity that benefits the most from US loans, more so than the Egyptian population itself. Given Egypt's status as a military dictatorship, the substantial allocation of aid to its military only further consolidates the existing authoritarian political structure.

It is argued that aid flows, particularly those skewed towards military and strategic interests, tend to strengthen existing power structures, often at the cost of democratic governance and economic diversity [7]. In Egypt, this has led to the military's increased role in economic sectors, limiting the space for civil governance and market-led economic opportunities [8]. As Easterly argues, the preexisting conditions of a country determine the impact of aid on the latter. In the case of Egypt, crony capitalism is perpetuated by the allocation of foreign aid. Aid flows are often captured by well-connected individuals and groups, rather than being used to support broad-based economic development. This has led to a situation where, despite significant inflows of foreign aid to Egypt, there is little to show in terms of poverty reduction or improved living standards for the general population [9]. Thus, since Egypt's pre-existing political landscape before being allocated aid is authoritarian, the aid tends to be used to authoritarian ends. This does not imply that aid is always a weapon of authoritarianism; rather, due to the Egyptian regime's authoritarian nature, aid only feeds the authoritarian apparatus.

II. The Economic Monopoly of the Egyptian Military

Aid flows can reinforce existing power structures and contribute to less competitive economic environments, particularly in settings where the military is heavily involved in economic activities [10]. In other words, the economic engagement of the military in sectors that could otherwise be competitive often leads to disproportionate benefits for the military compared to private entities. In Egypt, this advantage is a reality due in part to the military's exemption from legislative restrictions that typically regulate private sector activities, such as tax obligations and compliance with certain operational standards. Critically, the Egyptian military is exempt from having its budget certified by Parliament, leading to uncontrolled spending and the development of a vast parallel economy [11]. This economy is bolstered by zero-cost labor due to obligatory drafting and operates without the financial burdens typical of private sector competitors, such as operating costs and taxes, due to exemptions under Egyptian law [12].

Additionally, the financial support received from foreign aid further enhances the military's economic position. The aid that Egypt receives from the US, not only subsidizes production costs, but also buffers the military from the financial pressures faced by private businesses, such as the need to be profitable without such subsidies. This fiscal advantage allows the military to operate with significantly higher profit margins compared to local businesses, as their overhead costs are artificially reduced by external financial support. Consequently, the local Egyptian market is confronted with unequal competition, leading to a monopoly of the military as an economic actor. This economic dominance by the military not only stifles competition, leading to a monopolistic hold over various sectors but also transforms the military from a defense entity into a major economic player, thereby eroding the private sector's viability in Egypt.

While Israel receives about $3.3 billion in foreign military financing annually, Egypt receives around $1.3 billion [13]. In contrast, Israel's approach to similar levels of aid has been channeled into creating a domestic arms industry rather than reliance on imports, fostering technological and economic growth [14]. Thus, not only does aid add to the political weight of the Egyptian military but it also strengthens its economic weight, often at the detriment of the local Egyptian market.

III. From an Authoritarian Market Crash Domestically to Neocolonialism Internationally

Not only does aid reinforce pre-existing domestic political power dynamics by providing the military with more power via aid, but it also perpetuates international North-South dynamics that dependency theory aims to dismantle. One may argue that the relationship between the United States and Egypt exemplifies a modern form of economic and political dependency that aligns with core critiques made by Dependency Theory. This theory posits that global economic inequalities are sustained by the dependency of poorer nations on wealthier ones, which exploit them for economic benefit, thus embodying neocolonialism [15]. In the case of Egypt, this concern, which dependency theory presents, takes the form of a cycle in which the military aid that Egypt receives is in turn used to import arms from the United States or Global North countries, rather than invest in local Egyptian arms productions [16]. For instance, between 2000-2009, around 75% of Egypt's arms imports came from the U.S [17]. Although this number has decreased by 23% between 2010 and 2019, France and Russia, Global North countries, remain the top suppliers of arms to Egypt [18]. Thus, Egypt is rendered stuck in a cycle of dependency where it allocates the military aid it receives to consumption of military equipment rather than investment in local arms production. Here, aid allocation discourages Egypt from developing its own arms industry, which is crucial for economic diversification and national autonomy.

However, one could counter that Egypt may prioritize foreign arms imports due to the logistical challenges and immediate costs of developing a competitive domestic arms industry. Given the substantial infrastructure, technology, and expertise required to build such an industry, relying on international suppliers might be seen as a pragmatic strategy to meet immediate defense needs.

Moreover, some might argue that foreign military aid provides Egypt with access to more advanced technology and weaponry, which it may not be able to develop domestically in the short term. Still, the bro der implication remains that this dependence on foreign military imports cripples local industry growth, reinforcing Egypt's reliance on the Global North and limiting the country's potential for true economic and political independence.

V. The Geopolitical Leverage of Aid

Most of Egypt's foreign aid is allocated to maintaining Egyptian-Israeli peace, as seen in the substantial increase in U.S. aid following the 1978 Camp David Accords. I argue that the strategic use of aid as political leverage by donor nations, particularly the United States, reinforces a neocolonial dynamic that keeps Egypt dependent. As a result, Egypt is trapped in a self-perpetuating cycle of aid. Not only does this reliance further entrench military rule, but it also strips Egyptians of any real influence over foreign policy. Lacking a productive economy and dependent on financial rents from donor states, Egypt is forced to align its policies with the US' interests. A clear example is its approach to the War on Gaza, which was heavily defined by U.S. pressure.

In this sense, neither the Egyptian people nor the government have true autonomy. The government ignores popular will, which is overwhelmingly anti-Zionist, as reflected in a 2019-2020 survey where 85 percent of Egyptians opposed recognizing Israel [19]. Even if the government shares this stance, it lacks the power to implement such a policy independently. This creates two layers of obstruction preventing the Egyptian people's anti-Zionist position from influencing foreign policy first, through the government's disregard for public sentiment, and second, through external pressure restricting the state's decision-making.

VI. Why Does the Aid Not Trickle Down?

One may argue that the fatal flaw of aid is that there is no incentive for the aid to trickle down to the general population, in non-democratic states more so than in democratic ones [20]. Thus, to support true aid benefits, one may argue that there has to be a pre-existing democratic structure with institutions that ensure the absence of crony capitalism and the omnipresence of patronage networks. The inefficacy of foreign aid in Egypt, particularly in terms of economic and social development, can be attributed to deep-seated issues of crony capitalism and the nature of the political system under President Abdel Fattah al-Sisi. According to the selectorate theory, the effectiveness of governance and the allocation of resources heavily depend on the size of the leader's supportive coalition [21]. In Egypt, al-Sisi's relatively small selectorate primarily consists of military and security forces, which allows for a concentration of power and resources among a small elite group, leaving little incentive to distribute aid benefits more broadly to the general population. Crony capitalism in Egypt exacerbates this issue by creating an economic environment where business success is closely tied to political connections rather than competitive advantage or innovation. This system discourages broad-based economic growth and perpetuates inequality, as politically connected elites gain disproportionate benefits from foreign aid and other government resources. Egyptian "crony" capitalism compares the performance and market valuation of politically connected firms against unconnected ones, and connected firms often underperform yet consume a disproportionate share of economic resources [22]. In Egypt, al-Sisi's governance style indicates a small winning coalition predominantly composed of military elites and security forces. This concentrated coalition benefits directly from the regime's policies, including the strategic use of foreign aid. The allocation of aid sponsors the maintenance of this coalition as it involves the allocation of substantial resources to ensure the loyalty of a military elite to Abdel-Fattah al-Sisi. These misusing investments in public goods could otherwise benefit the broader population.

VII. Prospective Solutions to the Pitfalls of Aid

While it is undeniable that foreign aid has brought significant short-term benefits to Egypt, its long-term implications paint a more complex picture. The injection of over $30 billion by USAID since 1978 has undoubtedly propelled Egypt's development trajectory forward, achieving remarkable public health, education, and infrastructure successes. According to USAID reports, such initiatives have eradicated polio, drastically reduced child and maternal mortality rates, and vastly improved the accessibility of essential services like clean water, electricity, and telecommunications for millions of Egyptians [23]. These achievements reflect a substantial positive impact on Egypt's social fabric, although not a net one.

However, celebrating these gains may gloss over deeply entrenched structural challenges that persist. Indeed, while aid contributes to immediate welfare improvements, it does not necessarily foster sustainable economic development or enhance governance. Easterly argues that aid often fails to achieve deeply rooted economic transformations due to misalignment with local needs, inadequate oversight, and the perpetuation of dependency on donor nations [24]. This dependency is evident in Egypt's continued reliance on external military and economic assistance, which reinforces a cycle where donor countries' strategic geopolitical interests overshadow the recipient's developmental needs [25]. All-in-all, Egypt is simply not ready to be allocated aid, as are many countries in the Global South that receive aid despite not demonstrating compliance with international human rights. This does not imply that Egypt is naturally unfit to receive aid. Nonetheless, as long as it is not a democratic state, it does not have reason to appropriately make use of the aid it is allocated

Conclusion

While U.S. aid to Egypt has indubitably supported certain aspects of the country's development, it has also entrenched military dominance, exacerbated inequality, and perpetuated an authoritarian regime structure that stymies democratic reforms and economic diversification. The aid, while vast in quantity, is primary militaristic, reinforcing Egypt's geopolitical alignment with the U.S. and supporting the main nance of an authoritarian regime that prioritizes military and security forces over broader economic or social development. Ultimately, while foreign aid has the potential to be a powerful force for good, its implementation in Egypt highlights the complexities and pitfalls of aid in a politically and economically stratified environment. For aid to be truly effective, it must be coupled with democratic policies that promote accountability and equitable economic growth, ensuring that the benefits of aid extend beyond the military and political elite to the broader Egyptian population.

Notes :

[1] U.S. Department of State, “U.S. Relations with Egypt - United States Department of State,” United States Department of State, April 29, 2022.

[2] William Easterly, “Can Foreign Aid Buy Growth?,” Journal of Economic Perspectives 17, no. 3 August 1, 2003, 43. 1

[3] Ibid, page 37.

[4] U.S. Department of State, 2022.

[5] Ibid.

[6] “Fact Sheet – U.S. Military Assistance to Egypt: Separating Fact from Fiction,” Project on Middle East Democracy, July 30, 2020.

[7] Deborah A Bräutigam and Stephen Knack, “Foreign Aid, Institutions, and Governance in Sub‐Saharan Africa,” Economic Development and Cultural Change 52, no. 2 (2004), 263.

[8] Ahmed Morsy, “The Military Crowds out Civilian Business in Egypt” Carnegie Endowment For International Peace, June 24, 2014.

[9] Hamouda Chekir and Ishac Diwan, “Crony Capitalism in Egypt,” Journal of Globalization and Development 5, no. 2 (January 1, 2014), 22.

[10] Andrew Fenton and Timothy M Shaw, The Diplomacies of Small States : Between Vulnerability and Resilience, International Political Economy Series (Basingstoke, England: Palgrave Macmillan, 2009), 94.

[11] Jadaliyya, “This Land Is Their Land’: Egypt’s Military and the Economy” January 25, 2016.

[12] Sherine Tadros, “Military’s Economic Empire,” Al Jazeera, February 15, 2012.

[13] Guardian staff reporter, “US Orders Halt to Virtually All Foreign Aid except for Israel and Egypt,” the Guardian (The Guardian, January 24, 2025).

[14] Sharon Sadeh, “Israel’s Defense Industry in the 21 St Century: Challenges and Opportunities” 7, no. 3 (2004).

[15] Fernando Henrique Cardoso, Enzo Faletto, and Mattingly Urquidi, Dependency and Development in Latin America, Reprint 2020, 1 online resource (254 p.) vols. (Berkeley, CA: University of California Press, 2021).

[16] Jeffrey White, “Egypt’s Military in Power: Dynamics, Challenges, Prospects.” The Washington Institute, February 22, 2011.

[17] Marina Ottaway, “Egypt and the Allure of Military Power | Wilson Center,” Wilson Center, June 21, 2022.

[18] Ibid.

[19] Nabil Sharaf, “Egypt’s Ties to Israel Deepen despite Public Misgivings,” Arab Center Washington DC, March 19, 2021.

[20] Joseph Wright and Matthew Winters, 63.

[21] Bruce Bueno et al., “Testing Novel Implications from the Selectorate Theory of War,” World Politics 56, no. 3 (2004): 363–88.

[22] Hamouda Chekir and Ishac Diwan, “Crony Capitalism in Egypt,” Journal of Globalization and Development 5, no. 2 (January 1, 2014), 6.

[23] USAID, “مصر | Egypt | U.S. Agency for International Development,” Usaid.gov, October 30, 2019.

[24] William Easterly, 2003.

[25] Alan Whiteside, “Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa,” Global Public Health 5 (November 1, 2009): 2.

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