Breakfast Wrap: Egypt Central Bank Battle, Budget Deficit Under Morsi, Retail Always Wins

Do not be surprised if Egypt’s central bank governor Farouk El Okdah leaves his post in the early part of next year. Even though he yesterday vehemently denied that he planned to resign, his retirement has been on the cards for months (not just rumours but who is likely to replace him).

Yesterday Zawya Dow Jones reported Hisham Ramez, who was the former deputy central bank governor, is to take El Okdah’s place.  But analysts regarded the fact that El Okdah had attended a cabinet meeting this week as proof he was not leaving.

That is poor judgement considering his move will have been planned for months, and an announcement of resignation or retirement is not likely to be followed by a swift departure.  It is also likely that El Okdah does not want his departure to appear political amid the tumultuous situation in Egypt. The sensitivity of the situation means the leak to the local press must be managed with impassioned denials.

Management changes are however dwarfed by a more serious development at the central bank, as Noha Moustafa of Egypt Independent explains:

The most critical development within the Central Bank will be the impending amendments to the law governing its activity, which experts are concerned will infringe on its independence.

State-run Al-Ahram reported early in December that President Mohamed Morsy plans to issue a decree to amend the statutes that govern the bank and its officials, giving himself the authority to appoint members of its governing board.

The modifications reduce the number of board members and give the president the right to nominate the next CBE governor without the usual recommendations from the prime minister.

The amendments may also affect the positions of the some of the bank’s board members (all well known in the Egyptian business community), Moustafa points out:

Due to their current posts, some of the bank’s board members that may be affected by the changes include both Amer and Barakat, as well as chairman of Banque Misr Abdel Salam al-Anwar, former chairman of HSBC Egypt Mona Zulfacar [the chair of EFG Hermes], legal expert and board member of EFG-Hermes Alaa Saba [former CEO at Beltone] and economic expert Ziad Bahaa Eddin, who is also the former head of the Egyptian Financial Supervisory Authority.

The central bank has been lauded for its work in the last decade including a smooth flotation of the currency and the elimination of a black market. But these amendments, if eventually passed, will likely pit the new governor against the president in a battle for independence.

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For those expecting President Morsi to enact his long-awaited reform plans, here is evidence that it is now or never:

Egypt’s budget deficit increased to LE80.7 billion ($13 billion) during the first five months of the current fiscal year 2012/13, which starts in July, the Ministry of Finance reported on Sunday in a bulletin, Ahram Online reported

The same period of last year witnessed a budget deficit of LE58.4 billion ($9.5 billion).

That means, since Mohammed Morsi has been in power, the budget deficit has widened by almost 37%.  

Supporters say Morsi is planning to implement nationwide subsidy reforms and tax hikes after the parliamentary elections (which should start in two months from the referendum passing, but nothing has been formally announced). But wasn’t Morsi’s presidential campaign resting on the Renaissance Project and all the economic boosts that he claimed would come with it after he was elected? What’s happened to that? We have not heard anything related to the project for months and months.

Morsi, in the context of his dogged determination to go ahead with the constitution, already has a slim mandate to enforce tough austerity measures. But the more he waits, the less people he will please. It’s now or never.

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The one silver lining for Egypt, as Rebel Economy has pointed out before, is its 83 million consumer market.  That has brought the Gulf banks to Egypt to snap up banking assets ripe for picking, despite the political risk.

Now Egypt’s supermarkets are looking attractive too. Reuters reports:

Dubai’s Majid Al Futtaim (MAF), is in talks with Egypt’s Mansour Group, owned by billionaire Mohammed Mansour, to buy its supermarket business in a deal valued at $200 million to $300 million, three sources aware of the discussions said.

Mansour Group, also the largest distributor of General Motors cars in Egypt, is aiming to sell supermarket chain Metro and discount grocery store Kheir Zaman, the sources said, speaking on condition of anonymity as the matter is not public.

These “Egypt bulls” see low valuations after the revolution and are willing to take the risk of the political situation.  It’s always been said that retail is a defensive market because the sector is able to weather any crisis.  After all, no matter what people will always shop.




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