Monthly Archives: July 2012

Are global food prices a concern in the Gulf?

Global agricultural prices have risen by around 17% in July, raising fresh fears that food inflation will increase in the oil-rich Gulf. But given subdued core price pressures in most of these countries and the strength of the US dollar, overall inflationary pressures should remain weak, Capital Economics says.   Egypt may not escape that lightly.

Full research note here: Middle East Economics Update – GCC Inflation (Jul 12) (1)

Outspoken & Outgoing: Egypt’s FinMin Says “People Don’t Like To Work”

Egypt’s finance minister, Momtaz El Saied, is due to hand over the baton to a successor, but not without getting his last word in.

He told Daily News Egypt“After six months I discovered that the real crisis in Egypt is that people don’t like to work, they throw trash everywhere, and want money without working”.  

Electing a member of the Muslim Brotherhood as the next finance minister would also be a “mistake and may very well result in a greater deficit”, the article cites El Saied as saying.

During his term in office as Egypt’s fourth finance minister since the revolution started, he’s submitted a budget that actually shows the country’s deficit will increase 12.5% in the fiscal year, he’s failed to secure a $3.2 billion loan from the International Monetary Fund, not addresses calls from thousands of labourers for better workers’ rights, and he’ll be passing over a huge balance of payments deficit that has doubled over the year.

No wonder he’s grumpy.


Who ate all the Umm Ali?

This Ramadan, fasting Arabs were warned against overeating.  But this didn’t stop hundreds of Qataris being hospitalised after doing exactly that.   In fact, overeating is not confined to this month but is a chronic problem for the Middle East.

Egypt comes fifth on the list of the top ten of the world’s most obese nations, according to research compiled from UN and World Health Organisation data.  Kuwait, Bahrain, Qatar and the United Arab Emirates also feature on the list, beaten only by the US, which of course takes the number one spot.

The conclusion of the report: “Increasing population fatness could have the same implications for world food energy demands as an extra half a billion people living on the earth”.

On average, an Egyptian family spends 40% of its income on food and beverages, while annual expenditure on education is just 3.9%, Egyptian government statistics show.   Last year, Egyptians spent close to 8 billion Egyptian pounds on salty snacks, treats and sweets.  Egypt even has it’s own line-up of speciality obesity doctors that perform life-saving surgery, like Dr Khaled Gawdat, who pioneered morbid obesity surgery in Egypt in 1996.

Widening waistlines are a scary prospect when when food and oil prices are on the rise, impacting Egypt’s ability to pay for crucial wheat and petroleum imports (Egypt is the biggest net importer of wheat, and has increasingly relied on petroleum imports to meet energy subsidy demands in domestic and corporate markets).


[caption id="attachment_149" align="aligncenter" width="614"] World Health Organisation, 2011: The darkest red areas on the map (Pacific islands) represent obesity rates of 40% or more. The next darkest areas (US, Egypt, Saudi Arabia, Panama, and United Arab Emirates) represent obesity rates of 30-40%. Progressively lighter colors represent 20-30% obesity rates, 10-20% obesity rates, 5-10% obesity rates, and 0-5% obesity rates. The grey areas are not represented on the scale.[/caption]


Doctors have routinely linked poverty and lack of education in developing countries to high obesity levels.  But Egypt’s scenario could be more frightening.  Could a food subsidy system that swallows about $5.5 billion of the government’s budget be breeding a climate of heavy dependance on cheap, filling subsidised bread that costs just 4 cents a loaf? Vegetable, milk and dairy prices are rising every month tempting consumers to fat-filled salty snacks and treats.


Morning Round-Up – Egypt’s trade deficit, Bahrain bond issue, Qatar’s $15bn surplus

Business news from Egypt and the region

Egypt trade deficit soars 79.6% in year to April on higher commodity costs and lower exports, says CAPMAS

Egypt sells 3.5 billion pounds of reopened bonds  (this means the central bank is just issuing additional amounts of a previously issued bond with the same maturity. Reopened bonds have the same maturity date and interest rate as the original bonds, but a different issue date and usually a different price).

Second quarter results season (selected):

Sorouh Q2 profit climbs 34% as costs decline

Qatar Telecom blames FX losses for Q2 profit drop 

Nakheel says first half profits up by 36%

UAE oil group boss leaves amid debt woes

Bahrain plans $1bn bond issue in Malaysia

Jordan shielded by $2 billion IMF package 

Qatar raises budget surplus estimate to $15 billion – if only Qatar would just give that surplus to Egypt, then all the North African country’s problems would be over….



“There isn’t a single job description for anyone in government! And as for figures—it’s not that there aren’t figures, but that each ministry, each government body, has a different set of figures! They even have different maps! If you’re lucky, like I was, you have access to the prime minister and you can get hold of either accurate figures, or an agreed-upon compromise of the various sets of figures.”  Egypt: The Hidden Truth, Yasmine El Rashidi, The New York Review of Books

The above perfectly summarises Egypt’s chronic data problem.  Figures on trade, finance, economy and companies are hard to come by and those that are available are often contradicting and difficult to fathom.  Just take one look at the sea of figures below to see what I mean.  These numbers  from the Egyptian central bank show Egypt’s balance of payments, a big indicator of the soundness of the country’s balance sheet (this is only a third of the page).

The country’s data matrix becomes even more undecipherable at Egypt’s main statistics agency, the Central Agency for Public Mobilization and Statistics, or one of many “establishments of a titanic and looming administration”, as El Rashidi writes.  CAPMAS’s office is about the same size as the Mugamma (the Soviet administrative governmental building in downtown Cairo) and aggregates the main data from all the ministries.   An Egyptian businessman who works heavily in trade and bilateral relations between Egypt and other countries, told me that CAPMAS measured the number of cars exported from Egypt by weight, rather than simply by the number of cars.

“They just get the data from other ministries and churn it out; they don’t understand it,” the businessman said.  “I’m sure they just get the piece of paper faxed, copy it and send it back out without reading it or analysing it”.

I recently received four entirely different versions of Egypt’s total exports and imports from three different organisations: the General Authority for Investment (another government sponsored monolith), the central bank and CAPMAS. I decided to stick with UN figures that are universally accepted.

Incoherent data is a much bigger problem for rebuilding Egypt’s economy.  The previous parliament, before it was dissolved, complained of not having access to the same information as the ministries.  I hope the incoming parliament and cabinet does not have this issue, or we could end up with hotchpotch decision making based on a labyrinth of data.

Morning Round-Up – Saudi electricity, Yemen Crude, Egypt goldmine

Biggest business news from Egypt and the region:

First crude arrives at Yemen Aden refinery, Reuters 

Saudi Arabia shortlists four groups for Riyadh Subway project 

Losses at Sukari gold mine (owned by London-listed Centamin) estimated at $1.5million daily

Yields decline on Egypt T-bills

Results season:  Emaar predicts market recovery as profit jumps,  Du reports 57.1% jump in profit before royalties, Aluminium Bahrain, fourth biggest smelter in the world, said second quarter profit almost halved

Etisalat said it will open up to foreign ownership

Also –

Podcast of what to expect in Mohammed Morsi’s first 100 days from NPR

Guest Post: Shish tawouk? Thank Nasser

Guest post from Bradley Hope, The National‘s Cairo correspondent. 

If it wasn’t for Egypt’s lavish subsidies, Egyptians wouldn’t be eating chicken.

One of the interesting areas in economics is the unintended consequences of policy-making. Under Gamal Abdel Nasser, the army officer who helped lead the 1952 topping of Egypt’s monarchy, the government sought to bring social justice through land redistribution and increased subsidies of basic goods.

But what was meant to be a tool for improving lives for Egyptians has become vastly distorted over time. Bakeries sell much of the subsidized flour to private bakeries, who use it to make high-end pastries at a lower cost. The only losers in the equation are regular Egyptians, who wait in long queues only to find there isn’t enough aish (the Egyptian word for “bread”, which is also the Arabic for “life”) to go around.

These subsidies are a mainstay of Egypt’s economy more than 60 years later. Bread, a staple of the Egyptian diet, is sold for 25 piastres a piece from bakeries that receive subsidized flour from the government.

John Waterbury, the former head of the American University of Beirut and one of the most famous political economists in the US, studied this phenomenon in Egypt since the 1960s. One of his more interesting anecdotes relates to how subsidies for flour led to the creation of Egypt’s chicken farming industry.

Here’s the video of a speech he gave at AUB in 2008.

“The objective was to make sure at least the poor had access to bread, as part of the socialist commitment that certain necessities of life were available to the broadest strata of Egyptian society,” he says.

But “one of the most perverse” impacts was the correlation to the rise of the poultry business.

“Other than pigeons and doves, chicken had never been a big part of the of Egyptian rural production or consumption,” he says. But with Nasser’s reforms, businessman began feeding chickens cheap bread and selling the birds onto middle- and upper-class Egyptians. Nowadays, chicken is an important ingredient in Egyptian cuisine, so much so that it is hard to imagine it was not always the case.

Waterbury describes this as part of a major topic of his study, “the pitfalls of public policy interventions”.

Etisalat to allow foreigners to own shares

The largest publicly traded company in the United Arab Emirates, Etisalat, will soon allow foreigners to own its shares, Al Khaleej newspaper reported today citing the telecom operator’s chief executive.

It marks an important step for the UAE stock markets (made up of three different bourses; two in Dubai and one in Abu Dhabi) to address an important prerequisite for gaining international investment attention and boosting liquidity on seriously low volumes.

Foreign ownership is a vital component for gaining “emerging markets” status from the MSCI, an index provider.  The UAE is now classed as “frontier market” status, a grade that Bangladesh and Serbia and other volatile and under-developed markets share.  It has been turned down for an upgrade over and over again in the past few years because of its low foreign ownership levels and accessibility issues relating to clearing and settlement of stocks.   Qatar is in the same position, but worse.  Saudi Arabia, however, is on the right track and is inching toward opening up its market to direct foreign investment.  As the most liquid Arab market and one of the richest, it would do well to go this way.

Any classification promotion for the UAE equity markets would provide a boost to stocks by attracting larger pools of investors who track MSCI’s equity indexes.

If Etisalat actually goes through with this, it could become the catalyst for other companies to do the same.

Morning Round-Up

The most important business news from over the weekend and last week

Egypt’s new government to be announced Thursday, state media reports  – another box ticked for investors, now for the constitution…

Egypt Central bank keeps rates unchanged 

Yields fall on Egyptian treasury bills : Treasury yields have fallen from near-record highs in June after the central bank cut the local currency reserve requirement ratio for banks to 10 percent freeing more cash in the market and started selling repurchase agreements, a type of short-term borrowing for dealers in government securities (another instrument for the government to sell and make money).  The central bank has gone haywire selling treasury bills and bonds to domestic banks to try to plug its budget deficit.

EFG Hermes, the biggest investment bank in Egypt, to hold EGM “very soon” on deal with Qatari firm Qinvest: my story for free from Zawya Dow Jones

Some background on this deal: This looked like the most exciting business development for Egypt and the Middle East in a longtime, when a rival bidder, Planet Investment Banking (which has the backing of Naguib Sawiris and other rich Gulf businessmen), said it wanted to buy 100% of EFG Hermes pipping Qinvest to the post.  Planet IB appeared as if it wanted to conduct a hostile takeover, buying up EFG Hermes against the will of its board, but it turned out that the Planet’s investors would only participate if it got due diligence, which doesn’t really make it a hostile takeover.  Lo and behold, EFG Hermes wouldn’t open their books for Planet leaving the quite exciting investment outfit out in the cold.

Now the regulator has asked that EFG Hermes provide more information and details behind its deal with Qinvest to shareholders in another surprise turn in this deal.  EFG Hermes insists the deal will be done by the third quarter of this year.   Planet’s CEO Ahmed El Houssieny also sees no future with EFG Hermes unless due diligence is allowed. He told me: “as long as EFG’s management is adamant not to allow us to conduct due diligence then our position remains unchanged”.   Watch this space.

Egypt keeps interest rates on hold – no surprise

Some great, easy to digest, jargon-free research that readers should get acquainted with is coverage from Capital Economics and their economists based in London.  Their latest piece was on Egypt’s central bank decision to hold interest rates for the fifth consecutive time this year.

Political instability that keeps putting pressure on Egypt’s balance of payments (this is literally the balance of inflows and outflows) was behind the “unsurprising” decision, Said Hirsh of Capital Economics writes.

“Although the economy is weak and inflationary pressures have subdued … the risk of a currency crisis remains high given pressures on Egypt’s balance of payments.”

Changing interest rates are hugely important to an economy because of the influence a hike/decrease/hold can have on either stimulating the economy or causing increased inflationary pressure.  As one economist succinctly put it to me yesterday:

“Raising the interest rate would not make sense in this environment as it would hamper efforts to revive the economy.  On the other hand, lowering the interest rate could push up inflationary pressures and further increase depreciation pressures on the Egyptian pound. Hence, the best course is to be neutral before taking a bold action.” 

So in November 2011, when Egypt’s central bank raised the interest rate for the first time since 2008, it was in an effort to shore up the faltering Egyptian pound and inject much-needed liquidity into the country.

The question is – at what point will Egypt’s economy be able to withstand a vitally important interest rate hike to bolster the economy without falling flat on its feet?

(Read Capital Economics latest research: Capital Economics: Egypt’s CBE keeps rates on hold)