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Monthly Archives: August 2012

SPECIAL: The UAE’s Abandoned People

Guest post by Erin Conroy, a journalist working in the United Arab Emirates. 

Eid, the Muslim holiday at the end of Ramadan, has come and gone.

And with its passing, questions linger for as many as tens of thousands of people in the United Arab Emirates who, despite never setting foot outside of the country, are clutching brand new passports from the Comoros Islands, a small archipelago about 5,000km away off the southeast coast of Africa.

They were recently promised UAE passports and, along with them, the cradle-to-grave benefits of citizenship: government jobs, plots of land, wedding funds. Some were told they would have the Emirati passport in hand by the end of the holy month of Ramadan, but only if they agreed to assume another nationality in the meantime. The reason for this, officials said, is to legalise their status in the country.

But that didn’t happen, and many thousands still hold on to a passport for the four small Islands despite promises of Emirati citizenship.

Four decades after the UAE’s formation, human rights groups have estimated that there remain as many as 100,000 “bidoon,” or people born in the country without documentation.

The Comoros Islands

Their frustrations with increasingly limited access to healthcare, education and some basic services have made them louder – and at a time in which the UAE is tempering dissent in two ways. The country has shown it is willing to both placate the masses and crush those vocally critical of the ruling family’s wealth and power through sweeping arrests and deportations. The political activists stripped of their citizenship this year are perhaps the best example of just how the country sees its passport as a tool.

So, was the government’s promise last month to issue citizenship to those it deems deserving an effort to appease the people, or to silence them?

Perhaps the best explanation for the UAE to quietly dismiss its semi-citizens might be to preserve benefits for the small number who already have the coveted citizenship.

Plus, the Comoros Islands owes the Gulf a favour, otherwise why would it agree to distribute passports to thousands of people that it does not plan to embrace in any way?

Ranked by the IMF as the sixth poorest country in the world with GDP of $614 million last year, Comoros has experienced more than 20 coups and attempted coups since it became independent from French rule less than 40 years ago. It has welcomed help from Gulf countries with open arms,  mostly in the form of multi-billion dollar injections from two investment groups: Dubai-based HSS Holding and Kuwait-based Comoro Gulf Holding, which has offices in the UAE.

Both groups have injected more than $3 billon together into infrastructural investments, education, healthcare and banking.

Dubai World, the Dubai government’s investment company, meanwhile, said in 2008 that it would spend $70 million on a luxury resort development on one of the islands, to be managed by Kempinski Hotels, and would create a tourism master plan for the country with the blessing of the government.

The Comoros Islands, the southernmost member of the Arab League, has made the citizenship process surprisingly simple for entire villages of people who have no connection to the country. UAE ministry officials have made visits to communities in the remote northern parts of the UAE, gathering names and later returning with Comoros passports.

But some are hesitant to accept citizenship to a country they knew little about.  In the Northern Emirates’ Baluchi village in Ras al Khaimah, for instance, people who have named their children after the UAE’s ruling family members are questioning the move.

Jalal Mohamad, 26, was among those in the village who seemed torn about receiving the Comoros passport. He was born in the UAE, as was his mother, he told The National.

“Before when they suggested we take this [Comoros] passport, we said ‘no’, because we belong in the UAE. Now we say ‘yes’. Citizens with this passport can work for the Government,” he said.

In June, a month before the country’s promise to make the process somewhat transparent, the Comoros ambassador to the UAE told the Financial Times that a thousand passports had already been handed out to the UAE’s stateless.

One of those passports went to Ahmed Abdul Khaleq, author of a pro-democracy blog and among the UAE 5 arrested and convicted of insulting the ruling family. Last month he became an accidental tourist in Bangkok after UAE officials deported him on a tourist visa that was pasted into a crisp, new Comoros passport, “the result of a current UAE policy to prevent the bidoon from campaigning for citizenship in the country.”

“I don’t even know where the Comoros is,” he said, “except that it’s in Africa somewhere.”

The quiet involvement of the Comoros Islands is a tool to pacify a group of people by giving them citizenship to a country practically owned by the UAE, without sharing the benefits of the UAE.

It is also a back-up plan for any of those who choose to make a fuss.  The UAE has time and time again said it is wary of outside influence. It most recently launched a public campaign against what it is calling “foreign-linked groups” it fears are infiltrating the country and threatening state security.

More than 50 people have been arrested since March, including the lawyers who have represented activists in court. And this month, a handful of rulers and the country’s minister of foreign affairs called for support of the ruling family, seemingly in response to a video (see below) released at the same time by an Islamic political party looking to build what it describes to be a better ruling system.

An English translation of this video is available on request. Email rebeleconomy@gmail.com.

One thing is clear: the UAE is trusting few.

Think tanks and academics have also seen backlash and blacklisting. The polling organisation Gallup and the local branch of a German think tank were shut this year; last year, the Gulf Research Centre was forced out of the country at around the same time the founding dean of the Dubai School of Government was pushed out, and boards of non-government organisations such as the Jurists’ Association and The Teachers’ Association were dissolved and replaced with government appointees.

Academics have found themselves frustrated with restrictions on speech, including the economics professor at the Abu Dhabi branch of the Sorbonne University who was among the Emirati activists arrested last year.

Matt Duffy, an assistant professor of communication at Zayed University in Abu Dhabi who kept a pointed blog about the state of press freedoms in the UAE, announced in a post Tuesday that both he and his wife found out over the summer that their contracts had been terminated and their visas revoked under the orders of the government.

In the UAE’s efforts to continue balancing a sense of security for investors and global markets, it has cast a heedful eye on those it perceives as outsiders – including the stateless.

Authorities fear that many are originally of Iranian, Syrian or Palestinian descent who have destroyed their documents in an effort to gain UAE citizenship.

Those with the right paperwork, tribal lines and a favourable last name may indeed soon receive the passports that they have held out hope for. But the majority of the tens of thousands without a nationality have just been persuaded to obtain a passport just like the one given to Ahmed Abdul Khaleq, and perhaps even a visa to Bangkok if they still are not happy with the way things are.

What will ultimately happen to them is unclear.

Still, there are some who are cautiously optimistic.

“We grew up here, this is our country,” said Mohamad, the unemployed bidoon in the Baluchi village who chooses his words carefully. “We are from here, my mother was born here. From the first time we opened our eyes this is what we saw.

“We thank the Government, they give us everything.”



“We Will Fix You” – US mantra on Egypt

“In 2 weeks, the largest ever American business delegation will visit #Egypt w/over 100 people from more than 40 companies,” the US Embassy proudly tweeted this afternoon.

Hurrah! Egypt is saved!

Or is it?

“We are here to begin a practical and concrete dialogue,” said a jubilant Robert Hormats, US State Department Economic official and former vice chairman of Goldman Sachs, speaking to a few hundred business people at a meeting sponsored by the American Chamber of Commerce.

The Overseas Private Investment Corporation (OPIC), the U.S. government’s development finance institution, took centre stage, with its Vice President, Robert Drumheller, among the panellists.

It has committed $250 million to an SME Loan Guarantee program for Egypt, and will support up to $700 million in small SME lending by local banks and other institutions.

OPIC has also approved $125 million in financing for Cairo-based Citadel Capital to provide loans to medium-sized Egyptian companies into which Citadel has already invested equity – in the transportation, finance, information and communication technology, and consumer food sectors.

Sounds grand, until you refer back to President Obama’s pledge last year to allow up to a billion dollars of OPIC financing to support infrastructure and job creation in Egypt.

As is often the case with the US foreign policy approach to the Middle East, this breakfast meeting was not really about Egypt, but a US-centric and condescending affair.

After name-dropping companies such as Apache and Dairy Queen (apparently they’ve opened four outlets in Egypt, Hormats gleefully told the audience) and speaking at length about investment opportunities for US companies in Egypt, little mention was made of Egypt’s majority – i.e., its working class, the vulnerable, the labourers – or those that make the economy tick.

Instead Hormats emphasised the role of US companies, improving regulatory reform to boost the number of goods passing through Egypt’s borders and how “Egypt could benefit from more franchise agreements”.   This isn’t really benefiting normal Egyptians.

Let’s not obsess about the US’s image and role in Egypt, as Eric Trager, a fellow at The Washington Institute for Near East Policy writes in Foreign Policy.

Ashraf Khalil, the Cairo-based journalist and author, summed it up succinctly:

Let’s also not kid ourselves about the aim of this breakfast meeting.  It’s clear that in this changed world the US is no longer the saviour in Egypt, with even this small sum of money geared towards the nation partially an effort to open up investment for American companies.

Rebel Economy is much more interested in what deals will be struck up with China, the Gulf and other countries that could actually make a material difference in the way Egypt’s economy runs.



Hands Up If You Believe Morsi

This post has been updated to include Religare Capital Markets strategist Emad Mostaque’s point of view

Egypt’s new head of state, Mohammed Morsi, has declared that a currency devaluation “is completely out of the question” and ruled out any new taxes.

This decision may sit well with public consensus, considering a devaluation would immediately raise the price of imports, making it more expensive to buy basic goods like sugar and wheat.   And, taxes are never fun.

His diagnosis for the country’s deficit is good-old fashioned investment, tourism, foreign trade and exports.  Of course, if he were to devalue the currency, it would encourage exports.  A weaker pound would also stop a drain on foreign reserves which plummeted to $14.42 billion in July 2012 from $36 billion at the end of 2010.

Mohammed Morsi, Flickr, Wikimedia Commons, By AsianMedia

There is a deeper concern about these decisions however.

a) Morsi is trying to take the easy way out opting for safe, unambitious solutions (a bit like the choices behind his technocratic government).  Mediocrity never works for a government which has big challenges ahead.

b) Morsi says one thing, and does something else.  It would be no surprise if the government went ahead with a devaluation anyway in the next six months.  The IMF loan is a case in point.  When Morsi was chairman of the Muslim Brotherhood, the Islamist group was adamant the-then $3.2 billion loan wouldn’t go through unless all other alternatives for raising revenue were explored first (one example given was to increase export prices for Egypt’s natural gas).

No one borrows money without checking what he has first and the other alternatives,” Ashraf Badr el Din, the head of the Freedom and Justice Party’s economic committee told me back in January (via Zawya Dow Jones). 


Now Morsi is leading the talks with the IMF delegation without a whisper of what was said a few months earlier.

It is important to note that Mubarak carried out a “reform-by-stealth” in 1980s and 1990s where he quietly did all kinds of things in compliance with the IMF but did not talk about it publicly because of fears of a backlash.   It avoided riots but it didn’t help him as president.

The fact is, too much is said in Egypt (not just regarding the economy) for it to be retracted, altered, transformed, or just simply revoked.   We don’t want grand, but fleeting comments that have no spine.  If there are no plans for a currency devaluation, the central bank should corroborate this in a formal statement to end a year of speculation.

Turns out, quite a few put their hands up.  Here’s an interesting [edited] note from Emad Mostaque, chief strategist at Religare Capital Markets, on why no devaluation is a good thing:

Looking to get dollars through tourism, encouraging FDI, which should come through as Egyptian structure pretty much the same as pre-revolution and main power groups pretty much aligned.

I had expected at worst a gradual 5-7% annual devaluation, but my central case has always been no devaluation due to its political sensitivity and the difference between this and other devaluation scenarios (the representativeness heuristic in behavioural parlance) that the market seemed to have glossed over.

Egypt is backed up by the GCC and USA, two of the largest dollar holders in the world. You only get forced devaluation if there’s nobody to swap your local currency to dollars along with a few other stress factors. Not the case here and we’re missing most of the stressors that precede a forced devaluation like severe capital controls and a grey market.

Export competitiveness isn’t that high on the agenda right now, its not like we had a sudden spike in inflation and that scared off all those foreign investors. Foreign investors are rather looking for stability and adherence to the rule of law. The locals are looking for cheap bread, a return of the tourists in a safe environment and support for SME growth. Large industry is fine given the build up in local demand and low recent capacity utilisation during the crisis.

Outlook looks good over the next few years with both the Muslim Brotherhood and Salafist parties saying the $4.8bn IMF loan is fine, with real difficulties being 3-4 years out as growth won’t quite keep up with local demand and a shift from local to foreign debt may prove an issue depending on how the eurozone pans out.

Maintain strong buy on Egypt, CIB and Telecom Egypt being our favourite stocks at 30%+ discount to fair value and likely to remain uncorrelated with global markets.



Guest Post: Egypt Street Vendor Vendetta

Guest post by Hassan Massoud, vice president at a regional private equity firm 

One of Egypt’s persistent public policy debates is “What to do about the street vendor problem?”

One of the last Ganzoury government’s last policy achievements is a hilarious solution to the “street vendor problem”: creating centralized markets for the roaming vendors. The whole point of street vendors is that they can set up shop anywhere, anytime without being chained to one place. Hilarity aside, it is worth asking first: “Is there a street vendor problem?” Perhaps not; there’s actually a good chance the only problem with street vendors is that there aren’t more of them.

Cairo, Egypt. Flickr

Some economists estimate that Egypt’s five million street vendors sell about $5 billion worth of goods a year. To put this in perspective; an industry that employs 5 million people is just a million short of the country’s largest employer; the Egyptian government with six million employees. In a time where Egypt’s unemployment rate is at its highest in a decade (according to official government statistics 3.4 million people are now out of work), the country’s street vendors ply a hard trade that keeps the economy ticking.

Here is how our street vendors help our economy:

1 – Street vendors fight inflation.

Since they don’t pay shop rentals, trucking costs, employee salaries, utilities or taxes, street vendors can offer products at a very small mark up to their wholesale price. Say everyday a street vendor buys 20 pairs of high quality flip flops from the wholesale market at 10 Egyptian pounds ($1.6) each. All he needs is a 2 pound mark up to make a decent daily profit, and that’s assuming he sells nothing else. How much do you think a shoe store owner would charge for the same high quality flip flops? Street vendors make products available to the Egyptian public at a lower price than they otherwise would’ve had to pay.

2 – Street vendors improve traffic.

The basic premise of a street vendor’s business model is that he or she sets up shop in an area where lots of people are coming are going. If it weren’t for the flip flop street vendor, maybe 10 of his 20 customers per day would have made a special trip (or a special diversion from their daily commute) to acquire a pair of flip flops. So by making one trip to the wholesale market and retailing the flip flops downtown, we’ve saved the city’s traffic system 9 trips that would have otherwise been necessary. Imagine all the extra fuel saved, and avoided pollution.

3 – Street vendors save the government money.

In Egypt, diesel (the fuel used in most public transport vehicles) is heavily subsidized by the government; selling at about 20% of its global market price. It is one of the cheapest countries in the world to buy fuel (It comes second after Venezuela). At a microbus ticket price of 2 Egyptian pound (round trip) I estimate that the government is probably indirectly subsidizing each 2 pound trip by at least 4 pounds worth of diesel. By helping avert 9 trips every day, the street vendor has directly saved the Egyptian government 36 pounds, more than his own daily profit.

So, as a new government, unencumbered by the legacy of policies past, finds its footing, I hope they challenge the assumptions and biases of policy makers past and not view the informal sector as a problem to be eradicated.

Egypt’s thriving informal sector supports millions and is estimated to be worth about $250 billion. Instead of fighting it, perhaps policy makers should encourage and develop the informal market, let it prosper; these are tomorrow’s – formal – Small and Medium Enterprises.



Breakfast wrap: Saudi Arabia’s Cyber Protestors, $9BN Jeddah Metro System

Saudi Aramco, the world’s biggest oil producer, has resumed operating its main internal computer networks after a virus infected about 30,000 of its workstations in mid-August, the company said on Sunday.  It raises questions about how well equipped the region is to handle sophisticated cyber attacks, as Rebel Economy pointed out recently.

But the political dimensions behind this attack became apparent when an English-language posting by a group called the “Cutting Sword of Justice,” claimed the group had launched the attack to destroy 30,000 computers at Saudi Aramco.

It said the company was the main source of income for the Saudi government, which it blamed for “crimes and atrocities” in several countries, including Syria and Bahrain, Reuters said.  Saudi Arabia sent troops into Bahrain last year to back the Gulf state’s Sunni Muslim rulers against Shi’ite-led protesters. Riyadh is also supporting Sunni rebels against the Syrian regime of President Bashar al-Assad.

But these issues have been brushed aside, allowing the Kingdom to do what it does best: spend ludicrously large amounts of money,

KSA said it is preparing plans to build a metro system in its second largest city Jeddah, a project that would cost around 35 billion riyals ($9.3 billion), a deputy mayor of the city said yesterday.

Saudi Arabia, helped by big budget surpluses on the back of high oil prices, is spending over $400 billion in the five years to 2013 to upgrade its infrastructure.

Egypt’s government will no longer subsidize energy for new cement factories, including 14 factories for which licenses have already been issued, according to the industry and trade minister.  Follows similar decision for the steel industry earlier this year.

Egyptian families spend 5% of income on education, government statistics show.

Yemen’s anti-corruption body has said it would ask the country’s parliament to cancel a deal with DP World because the Dubai-based operator had failed to fulfill its obligations in running the Aden container port.

The United Arab Emirates’ Dodsal Group has won an estimated $450 million contract to build two pipelines from a gas processing plant south west of Abu Dhabi to industrial users to the north east of the capital.

MOVERS: 

Saudi Telecom Company’s chief executive of international operations, Ghassan Hasbani, said today he has resigned from the company.   On the same day, fixed-line operator Saudi’s Etihad Atheeb Telecommunication Company, said Monday its chief executive has resigned (via Zawya Dow Jones).

The board of Arab Bank, Jordan’s largest lender, has elected Sabih al-Masri to take over at the helm of the bank after the resignation of Abdel Hamid Shoman this month in a dispute over the chairman’s power.



Three decades of Egypt-IMF talks

Rebel Economy has compiled a non-exhaustive timeline of Egypt’s 30 year history with the IMF.  We welcome additions and important dates we may have missed.

[vodpod id=Video.16524979&w=425&h=350&fv=]

Click here for the full timeline, both visually and in text form.

Egypt has a choppy history with the International Monetary Fund (IMF) dating back to the 1980s.

Then, the international bank put pressure on the country to carry out far-reaching economic reforms that were met with widespread criticism.

Four years into Hosni Mubarak’s tenure as president (1985), the country faced difficulty paying $31 billion of foreign debts and  the IMF warned that Egypt’s balance of payments was undergoing a “serious deterioration”.   There was an “urgent need” for an austerity project, the IMF said at the time.

For the next decade, the country was to witness some of the most dramatic economic upheavals since Anwar Sadat’s “infitah” policy, or opening up of Egypt’s economy.

Under proposals agreed with the IMF, an economic plan for Egypt in the 1980s paved the way for Egypt to float the currency, cut the budget deficit dramatically, then in the 1990s, implement a swathe of privatisation deals.

That is when everything went wrong.

In 1996, despite strong disagreements of the plan, the Egyptian government went ahead with the privatisation of its national companies.  At the time, of 314 public sectors identified for sale, 24 were sold and another 72 were set to be auctioned off. Opposition groups, especially Nasserists, attempted to block sales through court orders but fail.

This decision haunts Egypt to this day and has prompted critics of the IMF to cast aspersions on the current $4.8 billion package being discussed.   The loan has been described as “bondage and slavery”, and a decision that will force Egypt “to sell the pyramids”.  For some, the IMF are simply liars and opportunists.

But years have gone by, and the IMF institution is a different animal, with different leaders.  Egypt is also not so disconnected from aid as it would like to be .  It has a history of having its debt written-off, which if had not happened, may have left Egypt bankrupt, struggling to pay its bills.

Accepting aid may be a contentious subject if taken as the only solution to Egypt’s financial crisis, as Rebel Economy has mentioned before, but as with a currency devaluation, if it is applied within an intelligent broad economic reform package, it will benefit Egypt tremendously.

The issue of a currency devaluation warrants its own post, but for now, here is a senior advisor to the Muslim Brotherhood and Freedom and Justice Party, responding to RE’s questions on whether a devaluation is necessary:

Tweet from Senior Adviser to the Muslim Brotherhood & The Freedom & Justice Party, Steering Committee Member of the Renaissance Project

 



Morning Wrap – Egypt’s Families Mired in Debt, Qatar Holding Is No Bureaucracy

The Egyptian state’s main wheat buying agency, the General Authority for Supply Commodities (GASC), has set a tender to buy an unspecified amount of wheat from global suppliers for Oct. 1-10 shipment.   It was the third international wheat tender by GASC in two weeks as the world’s top wheat importing nation moved to secure supplies amid rising concerns about weather-shortened crops in key exporting nations including Russia and Australia.

US economic officials will head to Cairo next week to discuss ways of helping Egypt navigate the transition following last year’s ouster of Hosni Mubarak, the State Department said Saturday.

Egypt reopened the Rafah border crossing with Gaza on Saturday, a lifeline for Gazans which had been closed for much of the month since an August 5 attack on Egyptian guards,  Reuters said, citing Palestinian and Egyptian security sources.   The move signals an advance in relations between Egypt’s new government lead by President Mohammed Mursi and Gaza’s Islamist rulers Hamas, which had deteriorated since the attack in which gunmen killed 16 Egyptian soldiers on the Israeli border.

It is also a signal that Egypt may comply with Hamas’s request to use the Rafah crossing as a commercial trade point into Gaza, as our guest blogger Jared Malsin wrote this weekend.

Egypt’s Suez Canal, a vital earner of foreign currency, sees “record [daily] revenues”, according to this Al Masry Al Youm article.   This waterway is seen by economists as a cushion for foreign currency that could allow Egypt to survive the post-revolutionary fiscal stress.

Also, you must read the following:

For a family of 5 in Saft El Laban, Giza, a salary of 1,500 Egyptian pounds ($246.44) is almost wipe out in a couple of days after debts, education and health costs.  A normal Egyptian family draws attention to the plight of millions of Egyptians in this story from The National’s Cairo correspondent, Bradley Hope.  About 20% of Egypt’s budget is spent on subsidies for energy, which is higher than the combined budget allocations for education and health care, which are 11% and 5% respectively.

US investigates Italy’s UniCredit over Iran sanctions - Italy’s largest bank by assets, is being investigated by US authorities for possibly breaking sanctions that prohibit doing business with certain countries, according to public documents published by the bank.

Qatar Holding comes of age as it resists “Glenstrata” - how a $70bn merger between Glencore, the world’s biggest commodities trader, and the London-listed miner Xstrata is likely to be derailed by a little-known sovereign wealth fund, Qatar Holding, writes Camilla Hall and Henny Sender in the FT.

Interesting insight into how Qatar Holding and its real estate arm, Qatari Diar, have very little process or bureaucracy, according to people who deal with them regularly, in stark contrast to the Abu Dhabi Investment Authority.



Gaza Tunnels On Life Support

Guest post by Jared Malsin, journalist and former chief English editor for the Palestinian Ma’an News Agency

Underground tunnels at Rafah where goods are smuggled from Egypt into Gaza. Photo taken in 2009 © Marius Arnesen/Flickr. IRIN

The Gaza Strip’s largest commercial portal with the outside world is a vast tunnel network.  Before the deadly armed attacks on the Egyptian border, about $500 million and $700 million in goods passed through the tunnels every year.

But all this may be forced to change.

Hamas is pressing Egypt to use the Gaza Strip’s Rafah border crossing for commercial trade and potentially designate Gaza a free trade zone, according to an important report from IRIN, the UN humanitarian news service.

The fact that this possibility is under discussion is significant.  Namely, because such a move could allow Israel to functionally end its responsibility for Gaza and further separate the Strip from its natural ties to the West Bank and Palestine/Israel at large.

Hamas’ proposal to transform the Rafah crossing into a commercial terminal could mean that the group believes Egypt is more serious this time around about closing down tunnels. At the least, this overture is a sign that Hamas believes the dangerous and physically unstable tunnel system is not a long-term solution to the economic collapse caused by the Israeli blockade of Gaza.

But the announcement comes at a sensitive time.  Earlier this month, Egyptian authorities moved to shut down much of the vast network of underground tunnels following an armed attack on an Egyptian border post that left 16 soldiers dead.

In the past, Egypt has used a variety of means to close down the smuggling tunnels, including a Bond-villain-esque attempt to build an underground metal wall. The smugglers were ultimately able to circumvent all of these attempts, including the wall (one smuggler told me during a 2010 visit that they were able to drill through the wall in a matter of hours).

This ambitious project would require a lot of work.

The Rafah border crossing is a passenger terminal and currently lacks the infrastructure to handle the passage of commercial goods, so any potential trade at the crossing would require a significant augmentation to the crossing.

Any future formalization of the border is unlikely to happen any time soon, as IRIN notes:

Calls for improved trade relations with Egypt have sparked fears that Israel would use the opportunity to rid itself of all responsibility for Gaza: Once Rafah is opened to commercial goods, Israel could argue it no longer has to keep open the Kerem Shalom crossing – the only official entry point for imported goods. “That would be the end of Israeli responsibility for Gaza,” said Thrall.

Such a move could undermine efforts to reach Palestinian unity by further disconnecting Gaza from the West Bank. For this reason, even Hamas is careful not to push too hard for imports into Gaza.

What’s happening at Kerem Shalom? “We don’t want to see Israel closing Kerem Shalom,” Hamad said. “Israel just wants to push us towards Egypt. But we do consider Gaza as part of the Palestinian homeland.”

“It’s a serious discussion,” added Shawwa, the former PA minister. “Do we want an independent economy of Gaza? That might take us into a new era of Palestinian separation.”

The ongoing focus on the future of the Rafah border is a result of diminishing expectations that Israel will ever reopen its border crossings with Gaza.

Beginning with the Israeli occupation of Gaza in 1967, Gaza residents enjoyed relatively free trade and movement within Israel and the West Bank. This changed in 1991 when Israel cancelled the general exit permit for Gaza residents, and matters became drastically worse with the imposition of closure in 2006 and 2007, following Hamas’ rise to power.

As Sari Bashi, the director of Tel Aviv-based advocacy group Gisha, told me in an interview last year: “Israel bombed the airport in Gaza and bombed the site where they were building a seaport,” Bashi said, “so those restrictions have made Rafah crossing into the gateway to the world for folks living in Gaza, but it doesn’t absolve Israel of the responsibility to respect the rights of people in Gaza to freedom of movement.”

The real question however lies with Egypt.

Under this potential scenario, with Israel all but absolving responsibility for the crossing, Egypt would have its hands full managing the border. For now the Egyptian authorities are giving little indication of whether they would accept such an arrangement.

Egypt’s dilemma is summed up nicely by Abdel Monem Said, director of the Al-Ahram Center for Political and Strategic Studies in Cairo, quoted in IRIN: “[Egyptian President Mohamed] Morsi knows he can’t really allow Palestinians in Gaza to starve. And there is pressure from inside the [Muslim] Brotherhood to support Hamas.”

On the other hand, he says, Egypt is constrained by close security cooperation with Israel in Sinai.

This will prove to be one of Mohammed Morsi’s most contentious challenges as president.



Angola’s Ladies in Luanda Splurge in Dubai

Yesterday Angola’s president Jose Eduardo dos Santos said the country’s plans to invest more than $17 billion in electricity generation and distribution by 2016 will boost social justice by giving low-income classes better access to energy.

But this optimism is often met with suspicion.  Dos Sontos, in power since 1979, is accused 0f doing too little to fight poverty since winning the war against rebel group UNITA in Africa’s second-largest oil producer.

A 27-year civil war that ended a decade ago devastated Angola, destroying most of its infrastructure, including energy plants and networks, meaning many goods, including food, have to be imported.  It begs the question of when the bubbling anger of the people will ferment itself into the latest of the region’s revolutions.  The calls for Dos Sontos to quit after 32 years in power are growing louder.

It has created one of the most frightening contrasts in the world.  Angola is simultaneously the richest country in the world (on paper Luanda, the capital of Angola, is the most expensive city for expatriates in the world) and the poorest (of the around one third of Angolans live in Luanda, 57% live in poverty).

Huge sovereign wealth fund-like companies dominate the economy.  Sonangol, the state-owned oil company, commands multibillion dollar borrowing facilities that stretch over a decade.  Respected abroad, its critics are wary of the group’s dominance.

“It’s not a state-owned oil company: it’s like an oil company that owns the state,” says one international official in Luanda, the FT’s Tom Burgis reports.

Angola is also one of the world’s top diamond-producing countries, but “a visit to Angola’s diamond heartland reveals that plenty of blood still spills over those precious stones”, writes Michael Allen in the Wall Street Journal.

The wide gap between the rich and the poor is summed up in the United Arab Emirate’s latest inbound tourism figures, which show Angola was the sixth biggest spender in the UAE last year.  

Angolans spent $166.1 million in 2011, up 89.1% from a year earlier, moving up four places on the league table.

In a country where a normal expat needs $300,000 to live normally for a year, it is no surprise that citizens are splashing their money elsewhere.



Top 7 Ways For Egypt To Improve Its Economy

Egypt has formally requested a $4.8 billion loan from the International Monetary Fund, up from the $3.2 billion that had been discussed since last year.

A loan package would add credibility to economic reforms needed to restore investor confidence.   The IMF loan should be signed by the end of November, or the beginning of December and will probably cover 5 years at an interest rate of 1.1%, the Egyptian prime minister Hisham Kandil told reporters today.  

It offers some reassurance to investors that Egypt’s meeting with the IMF delegation has been fruitful.  But there is a long way to go.

The nation’s economy has been crippled by 18 months of political turmoil in the wake of last year’s popular uprising against former president Hosni Mubarak. The country’s balance of payment problems have worsened – the balance of payments deficit doubled to $11.2 billion in the first nine months of 2011-2012 compared to a shortfall of $5.5 billion a year earlier.

Foreign investors have fled and are reluctant to return partly because of fears that a sharp currency devaluation could wipe out any returns .  Foreign direct investment fell to a meagre $218 million in the nine months that ended in March compared with $2.1 billion a year earlier.

Foreign reserves have also fallen to well under half the levels seen before last year’s uprising, plummeting to $14.42 billion at the end of July, from $36 billion at the end of 2010.

The crisis has left local banks taking on much of the short-term and other lending to the state and the government has also borrowed directly from the central bank.  State borrowing costs reached their highest in well over a decade in late June.

Time is running out for Egypt.  Rebel Economy interviewed half a dozen economists and came up with the following (chronological) list of what needs to be done to revive Egypt’s economy.

1) IMF loan to be rubber stamped: 

Egypt needs to get some stability on the balance of payments front or it will eventually face a major crisis.  Securing a loan with the International Monetary Fund would encourage foreign investment inflows and provide the seal of approval for the direction of economic policies as well.  It is looking like this may happen by the end of this year.

2) Devaluation of the Egyptian pound:

Some economists say this needs to happen either right after the IMF deal or simultaneously.   Investors and economists have repeatedly called for a devaluation to ease pressure on reserves.  The central bank has helped limit the pound’s fall to 4% since the beginning of the uprising last year, but the currency is expected to fall 9% in the coming year- to a historic low.

As long as there is a managed devaluation, rather than disorderly, the costs of devaluation should be manageable.  Higher inflation as a result of devaluation should be moderate given that the economy is weak and global commodity prices are likely to fall.  Plus increased costs of subsidies after devaluation should be partly offset by higher revenues from energy exports and the Suez Canal, meaning the impact on public finances will probably be limited.

3) Reforming Public Finances:

Restructuring the budget to cut the deficit.  At the moment, Egypt’s draft budget shows the deficit is projected to rise 12.5% to 135 billion Egyptian pounds ($22.26 billion) in the fiscal year that began on July 1 even though the government is already struggling to deal with its current shortfall.  It must have a plan to limit wasteful consumption spending (i.e., inefficient subsidies) so that spending can shift to urgent priorities:  targeted social support, education and health spending, public infrastructural projects and incentives to mobilize growth and employment in the private sector.

4) A Wholesale Reform of the Public Sector:

Egypt’s out-dated bureaucracy will keep holding the economy back until a really tough reformer begins to tackle problems, including drawing a line under Mubarak era corruption trials that have dragged on since last year.   The new government is made up of a group of technocrats with little political experience.  There are tens of regulators in Egypt that are charged with keeping tabs on various sectors of the economy (stock market, telecoms, electricity etc), yet all seem to ignore one another and are largely toothless.  The Illicit Gains Authority, which is attempting to tackle high profile embezzlement and investigation the wealth of the former regime, appears to be making a string of public announcements without acting upon them.  A reformer needs to be brought in who has vision, ambition and charisma to persuade others to accept the difficult decisions that will have to be made.

5) Focus on Private Sector:

Embracing a proactive plan to provide support to the private sector, particularly small and medium enterprises to ensure credit availability and structure a broad umbrella of institutional support.  This will ease existing hurdles of setting up a business and ensure the success of the new operation.  Earlier this month the World Bank approved $200 million for SMEs, a tidy sum considering the sector represents almost 90% of enterprises in Egypt and provides the main bulk of private sector employment.

5) Education and Employment:

For Egypt, a skilled workforce will be key. Egypt has one of the highest illiteracy rates in the Arab world. Boosting literacy rates alone could increase GDP growth a percentage point or two in the medium to long term.  Unemployment in Egypt hit 12.6% in the second quarter, against 11.8% a year earlier – equivalent to 3.4 million out of work.  But that data doesn’t include the large informal economy which evades taxes, engages in monopolistic and cartel behaviour. That in turn raises prices, prevents growth and makes it difficult for the government to know how many people are unemployed, a key metric for public policy.  There is a need to formalize this sector, which is predicted to be worth around $248 billion, according to Hernando de Soto, the Peruvian economist who was hired by  the Egyptian government in 2011 to legalize the informal sector.

6) Boost Trade Relations:

Egypt must widen the scope of trade relations to increase access to markets that would boost exports and attract investment.   The emphasis should be on building trade agreements, particularly with the US, but also tap emerging markets that are likely to lead global growth going forward.  So Egypt could look to Africa and widen trade relations with Arab neighbours.  President Mohammed Morsi plans to visit China at the end of this month to promote trade ties between the two countries.  China has been among the only big economies to continue investing in Egypt post-revolution, while others like the US have scaled back.

7) Central Bank Policy:

The central bank should ensure more flexibility in managing the exchange rate.  It should also limit the monetary policy to prevent expensive fiscal spending to continue. Finally the CBE should focus on reforms that increase competition and fight monopolistic practices that have unduly increased inflationary pressures and the cost of living while threatening the competitiveness of exports.