Author Archives: Farah Halime
The election of Donald Trump to the presidency has been described as nothing less than an American tragedy, a shocking upset for democracy. He was tipped for success by practically no one. Just two of the largest newspapers endorsed him (Clinton got 57) and his campaign lacked organization and relied heavily on social media and an overplayed reality-television persona.
“Barely anyone,” the Economist wrote last night, “gave him a chance.”
Yet, was this really a surprise, a shock? There was a critical and costly error in the running of the Clinton campaign that cost her votes and respect from people who have rejected the political establishment and an economic system that failed them. It is a system that has resonated with the disenfranchised in the Middle East for decades, and played out through uprisings across that region, and in Britain this summer. It’s a system that has escalated inequality, that has ignored public anger, that has increasingly been run by a governing elite that simply haven’t listened.
As the race evolved, the more the liberal factions, led by Clinton, denounced Trump as unfit to run the country, the more the euphoria for him grew from the millions of white voters across the country (the “white-lash” against a changing country.) And there lies the costly error that was borne from the Clinton campaign’s complacency to do more than just humiliate Trump and, more critically, his voters. The Clinton campaign’s primary rhetoric was to undermine Trump. “Is this the president we want for our daughters?” was the conclusion of a highly produced Clinton campaign featuring Donald Trump’s various insults about the physical appearances of women. It is a representation of an electoral race that has been based on a game of character assassination. It has been issueless and predominantly personal. It is what fueled the frustration that elected Donald Trump to office.
To most of the liberal media and those that read those newspapers, Trump supporters were just stupid. Put politely in columns, they were xenophobes and racists. But Trump listened to them. And when the results came in, there was utter disbelief that millions could vote for such a man who would gladly build a wall to block the Mexican population. He also plans to overturn the Syrian refugee resettlement program and get rid of gun-free zones at schools. Who were these people voting to support such a maniac? They’re voters, like you and I. They’re the electorate dealing with a system that rewards you for having the “right” education, living in the right neighborhood and on the right pay-grade. Trump listened to those people, the losers of a failed American economic system, and that’s why he won.
This Guardian excerpt explains more:
America has changed fundamentally over the last 35 years. America had finally started upending a longstanding and ugly racial hierarchy, removing legal barriers that had made the playing field anything but level.
For this, minorities overwhelmingly supported the new system, despite still suffering economically and socially more than white Americans.
Yet we replaced that system with one based on schooling, building a playing field that was tilted dramatically towards anyone with the “right” education. The jobs requiring muscle decreased (many going overseas) while the jobs requiring school increased. Compounding the pain from this, we started giving the winners a much larger share of the profits.
The early Trump voters I met were the losers from these changes. Their once superior status – based only on being white – was being dismantled, while their lack of education was also being punished. As Trump gained momentum his message started to resonate with these entire communities. It had become tribal: entire communities were joining the back-row kids.
So don’t blame the voters, don’t be horrified at them. Blame the system and the governing elite that has been seen not to have listened.
It was marketed as inevitable, a necessary step to seal the deal with the International Monetary Fund. What choice did Egypt have, economists and analysts said. The nation had no choice but to hike interest rates and float its currency. Yet the country surprised the market, economists and investors with an almost 50 percent devaluation.
Egypt’s economy, one of the most critical, simmering issues in the region, is again in flux. The country’s fiscal situation, which has a direct bearing on the security and livelihood of an already endangered population, was sent into a tailspin when a new currency regime was announced this week. “There will inevitably be fresh pain for the economy in the near term,” said Jason Turvey, economist at Capital Economics in a note. The decision is already having reverberations across one of the most fragile countries in the Middle East and North Africa, with prices of staple commodities expected to balloon. Mohamed El Dahshan, non-resident fellow with Tahrir Institute for Middle East Policy told Middle East Eye:
“We are now in hell and the only way out is through.”
The IMF predictably championed the move, saying the new system better prepared people to sell dollars as well as buy them, injecting more money into the economy. The move would eliminate a thriving black market for dollars and secure, after five years of on-again off-again negotiations, that much-needed IMF loan. Without this, there was chaos and economic armageddon on the horizon.
There is a price to pay for Egypt’s complicity with the IMF at such a late stage attempt at economic recovery. Like most regimes with troubled economies, Egypt has a history of hiding the true extent of its inflationary woes. In many cases, governments fabricate inflation statistics to hide their economic problems, and Egypt is no exception. Steve Hanke, a professor of Applied Economics at Johns Hopkins and director of the Troubled Currencies Project at the Cato Institute had this to say to Rebel Economy:
“Inflation is an enormous problem and my estimate is inflation is considerably higher than official numbers and between 105 percent and 110 percent.”
The IMF, Hanke said, has provided “incredibly bad advice,” that serves predominantly to provide false hope and delay any real solution. “They [the IMF] did this just a few months ago in Nigeria, and they have not stabilized the naira [Nigeria’s local currency] and they’re not going to stabilize the pound,” Hanke said. Nigeria is experiencing an eerily similar problem to Egypt. It managed to sharply devalue its currency but only worsened the very problem that devaluation was meant to solve. Read this Quartz piece for a scary window into Nigeria’s present situation and Egypt’s future.
The underlying issue that no one wants to talk about, said Hanke, is this:
“The IMF wants a monopoly on giving advice, and the governments it advises are afraid to get a second opinion because they’re worried they won’t get money from other governments. It’s a false hope and it allows them to kick the can down a little further.”
But there is another way. Hanke suggests Egypt’s solution could be the implementation of a currency board system, which effectively combines a fixed exchange rate between a country’s currency and an “anchor currency” (which would be the U.S. dollar), automatic convertibility, and a long-term commitment to the system. “The rule is you have to back the local currency,” he said. The system has been tried and tested in several countries, including Bulgaria, where Hanke was an advisor to the government that implemented the program in 1997. The key is disciplining the fiscal authorities, says Hanke.
And guess Egypt’s primary problem is? Discipline. “In Egypt, the government can borrow from the Central Bank any time they want,” Hanke said. Bulgaria was in the midst of a banking crisis and entering a period of hyperinflation. The currency board system reduced Bulgaria’s annual inflation to 13 percent by mid-1998 and to 1 percent by the end of 1998 while rebuilding foreign exchange reserves from less than $800 million to more than $3 billion—more than six months of imports.
So why hasn’t Egypt taken this step? Why hasn’t it been put on the table? Because the military, who controls vast swathes of the economy, might find it hard to swallow.
Inflation is at the highest level in at least seven years, and the president and his team will have to satisfy the IMF through hard measures, including adequately reducing energy subsidies. And Egypt doesn’t seem too far from Bulgaria’s situation today.
Emad Mostaque, a strategist for Ecstrat, an emerging markets consultancy, says Egypt was just shy of hyperinflationary collapse before this week’s currency regime changes, with the deficit, tax base and interest payments all hovering around the 12 percent-of-GDP mark, not to mention debt-to-GDP exceeding 100 percent. (If you want to see what hyperinflationary collapse looks like, just check out Venezuela). Mostaque says:
“Nasty things happen when your entire tax base is barely enough to cover your interest costs and you have less than 3 months of import cover.”
Like an ambivalent marriage, The International Monetary Fund’s on-off relationship with Egypt (which dates back to the 1980s) is back on track.
There is $12 billion on the cards for Egypt, subject to final approval from the IMF’s executive committee. A green-light on the three-year loan package is expected to be followed by a flood of cash from the Gulf, the World Bank and African Development Bank.
Yet for the billions of dollars Egypt has received in the last five years – over $25 billion alone from Gulf States – there is one issue that has the country tied down in a vicious cycle: the banking system, nearly half government-owned, is inextricably indebted to the Egypt’s finances, allowing it to rollover maturing local currency government debt, which is a whopping 30% of GDP, while also providing new financing. Banks are also obligated to invest enormous amounts in Treasury Bills, the hard currency short term debt that the country taps into regularly.
But much of this money has gone to financing deficits and propping up a hugely overvalued currency.
What does this mean for the economy? The government is allowing its banks to superficially support its finances, allowing it to inch along, plug gaps as they appear, without acknowledging deep rooted social and economic reform that is mostly grounded in infrastructural changes. It’s reached a point that the government’s dependance on banks is the “only reason why a full blown economic crisis has not taken place, despite extremely weak economic indicators,” according to Raza Agha, the chief economist of MENA at VTB Capital:
I do not think lending these amounts is healthy – it crowds out generally more productive private sector needs. Plus, lending such amounts also creates enormous risks for banks balance sheets/financial sector in general.
So what does this kind of support look like on paper? First of all, look at what happens when credit to government overtakes the private sector (note: this happened right around the beginning of the Arab Spring, when the red line overtook the blue line):
The chart shows that net credit to the government and public sector businesses is over 1000% of bank capital and reserves, a huge burden to place on the banking sector. Then look what happens when banks go crazy on Treasury Bills, again to support the government:
Banks’ investment in Treasury Bills is 1200% of their capital base. Twelve hundred percent. Agha explains why banks do this:
There are regulatory reasons; there could also be “encouragement” by the government to invest in upcoming auctions of government bills (it’s easy to be convinced when the public sector ownership dominates the banking system); there may also be risk-reward considerations – if banks can earn double digit returns by lending to the government, which technically cannot default in local currency, why engage in riskier private sector lending at a time when growth dynamics are weak?
The banking sector has little choice. Why invest in a potentially more lucrative private sector when the safety and reward is with government lending, and they’re telling you there’s no risk of default?
But it’s a risky game. For instance, this system is predicated on the fact the country’s credit worthiness (which gives investors a window into the level of risk associated with investing in Egypt including political risks) remains fairly steady. If it was to sharply drop, then the banks would be lumped with very risky debt. Agha puts it into context again:
[Egypt’s] credit worthiness is already amongst the weakest I have seen across single B rated countries [see here for definitions of credit ratings]– this is clear in their debt levels, debt servicing pressures and the extent of external financing needs.
In a country ruled by the government of Abdel-Fattah el-Sisi, a former army general who seized power from an elected Islamist government three years ago, there are of course other doubts over the success of the IMF loan. Will it tend to rising inflation and the 13% jobless rate? Will it narrow the huge budget and current-account deficits—almost 12% and 7% of GDP, respectively? As Bloomberg’s editorial board puts it in this great op-ed:
IMF officials practically admitted that the new package is mostly cosmetic. The fund and Sisi’s friends in the Gulf need to insist on real reform. Egypt should invest in simple infrastructure such as roads, schools and water-supply systems; make it easier for small and medium-sized business to get bank loans; and break up the military-industrial monopolies in everything from washing machines to olive oil.
The IMF loan is only a window to recovery. Egypt must find a way to balance the social cost of reform with the economic cost of no reform. So far, Sisi seems to have focused much of his economic reform rhetoric on a $45 billion mega-city, which was quietly shelved.
The future of the Egypt’s national airline is in question after another major security breach, the third in less than a year, caused the crash of an international flight.
In an era of heightened global sensitivity among travelers, EgyptAir does not bode well.
Just in March, a ‘psychologically unstable’ man forced an EgyptAir flight en route to Cairo from Alexandria to divert to Cyprus, signaling a worrying absence of simple safety measures. That was a mere five months after a terrorist bombing brought down a Russian plane, killing 224 people over Sinai.
The immediate response was heightened security at Cairo Airport, a commendable, if superficial solution. Patrick Werr, an economics and finance journalist based in Egypt for 25 years, shared this scene:
I’ve never seen such security at Cairo Airport! Long lines in front of check points. They made me take off my shoes twice and run them through the scanners. There was a showdown between the police officer and two angry Coptic priests, but in the end he won and they had to take off their turbans and run them through the scanner. All the police were stern. I, a non-expert, have never seen security so tight.
While it’s already clear that the lack of a sufficient security protocol is a death knell for the tourism industry – where the number of visitors to Egypt has fallen to 9 million in 2015 from a record 14 million in 2010 – there are questions over the survival of the nation’s flagship airline. The fate of EgyptAir is inextricably linked to Egypt’s tourism industry and, unfortunately the other problem plaguing Egypt: oil. As a result, the company has suffered considerable losses since the beginning of the uprising in 2011 – incurring losses of nearly $1 billion since the beginning of the 2011 – partly due to an increase in fuel prices, the devaluation of the Egyptian currency and continuous strikes within the company.
What’s worse, EgyptAir is actually self-financed. Although the airline is 100 percent state-owned, it has a special agreement with the government that allows the management to operate as if the company were privately owned. That means the company claims it has no financial backing from the Egyptian government. That contract has already caused problems. Last year, it was forced to hire an American firm to restructure. Over the course of the last few years, it has had to slash prices for tickets several times and it’s goal now for the fiscal 2016 year is to merely break even.
The question is, can EgyptAir sustain repeated losses and reputational damage as a result of mounting security threats? It’s not just the recent years. EgyptAir’s track record is appalling – just think back to 1999, when an EgyptAir flight from Los Angeles to Cairo, with a stop at a New York airport, crashed into the Atlantic. Back then, the airline absolved responsibility, and it does today, hiding behind the shroud of terrorism.
Yes, this may be down to a terrorist threat, but at what point will the airline be accountable for its lack of security? There may be a point where the government is forced to fully takeover EgyptAir, dipping into the state coffers to support it financially. But that doesn’t change its operations and the responsibility of the management over their company. If a tragedy such as what happened this week had affected an airline such as RyanAir in England or United in the U.S., calls for resignations would come fast and hard.
However, Sameh Hafni, the president of EgyptAir, has not uttered a word.
When you think of ISIS, forget the image of balaclava-clad men, with kalashnikovs screaming “Allahu Akbar”. Think of a carefully managed startup that has, like other successful companies, lured international investors, diversified its income and widened its outreach. Just like any startup runs on equity and investment, this terrorist organisation also obtained funds to organise its structure and plan operations.
If ISIS Inc. was headquartered in Silicon Valley, it would be considered one of the top private companies in America. Based on even conservative estimates, last year the group controlled assets in excess of $2 trillion, with an annual income amounting to $2.9 billion, according to Thomson Reuters. That’s more revenue than the retailer J Crew and the household appliance corporation, Conair, earn a year.
Yet, in defeating ISIS, it’s important to dispel short-term solutions, particularly those that fall under the sway of “retribution” such as mass bombing. Sanctions and intense warfare alone won’t work, because ISIS thrives on the failure of Middle Eastern governments. To beat ISIS, governments must first address President Bashar al-Assad’s government in Syria as part of the problem. This is a mess born of the Iraq war and the Syrian civil war, the brutality and sectarianism of which has become a recruiting tool for the Islamic State. “Assad is not a sideshow,” says Emile Hokayem in this report. “He is at the center of this massive dilemma.”
Take ISIS’s authority over oil, for starters. It is by far the most lucrative commodity for the group. It is the “black gold that funds Isis’ black flag” and not only fuels the war machine, but also provides electricity and gives the jihadis critical leverage against their neighbours. Yet, blindly bombing ISIS’s oil reserves could actually help it more than it could hurt it by disrupting the livelihood of those who relied on oil trade. As Hassan Hassan, Chatham House associate fellow, writes:
Airstrikes disrupted this wartime economy and many families, who continued to buy oil from its new owners, ISIS, increasingly found it difficult to find alternative means to survive. This pushed some families to send their sons to join ISIS as the only way to generate a monthly income, according to several individuals living under ISIS.
The depletion of Syria’s ageing oilfields are, alone, containing ISIS to some degree. The group’s need for fuel for military operations also means there’s less to sell in the market.
It’s too late to expect that freezing the assets and halting the sale of weapons to those countries that have supported ISIS will stunt the organisation’s power. The jihadist group has already become immune to international sanctions.
Not only has it infiltrated every aspect of the economy, including the banking system (for example, more than 20 Syrian financial institutions continue to operate in ISIS-held territory, according to Matthew Levitt, director of the Stein Counterterrorism program), it has also been making millions for years simply through a string of illegal activities (think: extortion through illegal taxes, and kidnap and ransom payments, selling sex slaves and plundering of antiquities excavated from ancient palaces and archaeological sites).
So any optimism that ISIS will have financial oversight is short-lived. In fact, “blocking the assets that fill ISIS’ coffers would mean rethinking the world’s economy,” says Italian journalist Roberto Saviano, an impossible feat considering the group has already exploited the underbelly of the financial system.
So how do we bankrupt ISIS, considering all the above?
Forget the strategy that addresses the symptoms not the disease. Indeed, as Emad Mostaque, strategist at Ecstrat tells Rebel Economy:
Our governments guarantee us safety from political violence, so when political violence is introduced into public life, governments typically over react and expend valuable resources fighting a small, hard-to-hit enemy.
This is why the war on terror has been a resounding failure, spending $2 trillion, killing 2 million civilians and seeing the number of enemy recruits going from under 1,000 to over 100,000 in 14 years.
Instead, there should be more focus on a long-term option that addresses grave unemployment (remember, ISIS thrives on the Arab world’s failures to provide to the people and relies on unemployed youths for new recruits). This means providing people with opportunities to enter competitive, labour intensive jobs, within blue-collar industries and prevent the draw to radicalism. It is a strategy for economic reform that critically channels most of the gains to the bottom 80%. The summary of this five-fold plan, by Middle East analyst Nathan Field, is necessary reading for understanding why ISIS continues to recruit and grow stronger.
In the end, there’s many things to be done:
Focus on resolving the Syria crisis as a whole and life after the Assad regime
Get the region to think differently about jobs for youths to help stem the flow of disenfranchised young people to ISIS
Targeted attacks against ISIS to limit their growth, and other sanctions
Cyber war on the ISIS propaganda machine to mitigate their message
There’s also a radical option, more in line with the rebel fighters of Libya. Train Syrian refugees in Turkey and other parts of Europe in the art of sabotage and send them back in as the Resistance. The most embarrassing problem for ISIS is their own “people” striking back at them. Bankrupting ISIS, a terror group which has further reach than any group before it, can only happen if the entire structure collapses, and that starts from within.
The Islamic State, or ISIS, and their affiliates are increasingly showing organizational skill and willingness to engage targets on foreign soil. But one of the key frontiers for this ruthless, extremist group is the Sinai Peninsula. Here, ISIS is building a new generation of jihadist fighters. Mohannad Sabry, a journalist based in Cairo, has just published a book based on the security and political situation in Sinai, Sinai: Egypt’s Linchpin, Gaza’s Lifeline, Israel’s Nightmare. It was published a day before the Russian plane came down over Sinai, an eery reminder of the frequency of terrorist attacks and, ultimately, our lack of comprehension of the ISIS force.
Sabry talked to Rebel Economy about how ISIS has become a “magnet in the field for militant groups, attracting every wannabe,” including the young and the amateur. For these young terrorists, the fall of the Metrojet flight to Russia, the killings of hundreds in Europe and beyond, is considered impressive. Sinai, Sabry says, “has become Beit El Harb, a House of War.”
- First thing’s first. Was the Russian plane was taken down by a bomb?
It’s a possibility, but do we have any evidence? I don’t think so. The only evidence we have is residue left on the plane. There’s little hope in having transparency on the subject. But you cannot just say you have a bomb on board without having any evidence. The intelligence didn’t tell us anything detailed. They just said we have theories, but nothing solid. That opens up a lot of speculation. Simple we have a very valid theory, but until we are given more evidence on the ground, we cannot confirm this theory. Is it 90% possible? Yes it is, but it’s not confirmed. We’re not getting any detailed information from the intelligence and the fact that the Russians and Egyptians are running the investigation is not helping, those countries do not have a track record of transparency.
- Why is Egypt so sure that there was no bomb? Is it possible they are not being honest?
They are denying any kind of crisis or scandal which is the usual Egyptian goal, the easiest thing to do for the Egyptian regime is to simply deny anything, and then everyone forgets about it. This is exactly what has happened after every crisis. After the Rabaa massacre, they said we didn’t commit the massacre. They thought they’d deny the scandal and no one would react. But this time the crisis is much bigger than anything they’ve ever handled before. And let’s not forget we are living in the post 9/11 world so anything that involves planes or flight security is terrifying for the world. It is unprecedented and something that Egyptians are not used to.
So now, the Egyptians are using a friendly rhetoric.
By simply holding a press conference instead of not acknowledging the crash, and the fact that one of the investigation team said that he heard the last minute recording of the black box demonstrates a difference in their tactics. The fact they brought Russian and British investigators to Sinai is unprecedented. They’ve been denying other countries access to Sinai and now we’re seeing access given by the Egyptians. But unfortunately it took a passenger flight to crash to change their actions, and 224 lives.
- Do you think Suez Canal security is also a major issue?
The Suez Canal is far from the major Islamist territories of Sinai, it’s more than 200km away. There was one attack in 2013, and since then the egyptian military understands the importance of the Suez Canal. It’s an international investment and there’s an international collective concerned with securing it. We’ve seen groups infiltrate Ismaila, and in the capital where the Interior minister was killed. But the Canal is hundreds of kilometres long. Are they [militant groups] capable of causing more damage? Yes, it’s a possibility.
- Can you explain a bit more about Ansar Beit al-Maqdis? What troubles have they caused? Are they the group people now refer to as Islamic State in Sinai?
In 2011 there was a dozen groups in Sinai, half of them were online and amateurs. Jeish el Islam, Tawhid Wal Islam, and others are among the groups associated with that region, but clearly the main group is Ansar Beit al-Maqdis, and they are a very understandable dynamic, and the bigger group in Sinai. They are doing what the Al Qaeda campaign did in the 1990s, when declaring global jihad and they ended up attracting other groups to them. What happened then is happening again with ISIS. They are a magnet in the field for militant groups, attracting every wannabe, including young and amateur Islamists. In the overall context, Sinai has become Beit El Harb – a House of War, not a House of Peace. This is actually more dangerous than having weapons – having a reputation and this is helping lure in the kids and the fragmented groups.
- North Sinai always seems to be in the news for something terrible. Why is it that the Egyptian government can’t seem to regain control of the area?
North Sinai is in the news every couple of days, there’s attacks all the times. Egypt is fighting a war with a guerrilla army, you’re talking about a military institution that relies mainly on conscripts that are simply ill-trained and unfortunately we’ve seen so many of them killed because they’re not trained to deal with a guerrilla war. There has been countless examples of intelligence failure, where in the best case scenario they failed to utilise the intelligence. All of this collectively explains why we are not winning the war.
- Can you explain a bit more about the tribal system in Sinai? How does that affect the ability for the army and/or police to root out IS in Sinai? Why does Egypt military distrust the Bedouins?
The state doesn’t trust the Bedouin community, and they don’t want their help. I’ve met the tribal king pins and they’ve offered the Egyptian military help, but they’ve always refused this.
If it’s a case of why tribes haven’t taken out the Islamists, it’s more complicated than hiring a few Bedouins.
Intelligence requires sources to report what they see, like a Bedouin who sees an Islamist planting a bomb. That’s impossible in Sinai, though, because the Bedouin community is not being protected. Dozens of Bedouins have been beheaded. Yet the Bedouins have proved themselves loyal to the state – who freed the kidnapped tourists? Who freed the kidnapped soldiers under Morsi? But what do those guys get, they get nothing from the state.
Egypt is not willing to cooperate with the Bedouins and trust the community. But the easiest thing to do to gather intelligence is to secure the friendly relations of the people and to protect them from the killing.
In the midst of the worst recession in America since 1929, Ben Bernanke, the former head of the Fed was asked simply, ‘When will this end?’.
This was his response:
The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis.
Sounds logical. Especially coming from the man who was considered the most powerful person in the U.S. working to save the economy, and eventually he did.
Yet, apply this logic to Egypt, which has for so long languished in its political mess, and you see it doesn’t fit. Policies have been made and then broken, currency devaluations have been enforced, slowed and then prevented, and interest rates have been held and occasionally cut, and still reserves are pretty much where they were four years ago – sitting at just over $16 billion, enough to cover about three months of imports—the minimum the IMF considers advisable.
Up till now, Egyptian tourism has survived big setbacks. If there was any trouble in the desert or along the Red Sea, it was small, and tourists were not the targets (at least, under Sisi.) Yet, memories of an Islamist uprising in the 1990s that took years for then President Hosni Mubarak to crush have been aroused of late. In September, Egyptian security forces mistakenly bombed a convoy of Mexican tourists in the western desert while pursuing militants. Last year, the bombing of a tourist bus in Sinai killed two South Koreans and an Egyptian.
The problem now is that Egypt’s economy is much weaker and cannot sustain a drop in foreign currency. Foreign direct investment (FDI) amounted to $6.4 billion in the last fiscal year (from the financial year running July until June), and the government is hoping (unrealistically) for $10 billion this year. Unemployment has hovered at a record high of over 12 percent since the beginning of 2011 and the biggest issue, the current-account deficit, is still high. That’s because Egypt is still spending a lot more (on oil, wheat, cars, metal and other goods totaling roughly $60.8 billion) than it is exporting (just $22 billion last year.) And that’s been happening for more than ten years.
Unlike the 1990s, Egypt’s economy is in a much more precarious position.
Take these graphs, from Capital Economics, on the number of tourists flying to Egypt and the foreign currency reserve level:
According to estimates from Jason Tuvey, a Middle East economist at Capital Economics, export revenues (because tourist receipts are counted as a service export) could fall by as much as $3.5 billion, or a massive 1.3 percent of GDP, over the next year. That is a huge chunk out of the tourism industry, which accounts for 6 percent of Egypt’s GDP already and 1.3 million jobs. It’s especially bad because the Red Sea resort towns of Sharm El Sheikh and Hurghada were among the most successful tourist sites, even more so than the desert destinations. Daily occupancy rates reach more than 70 percent here at the start of June. It even prompted the tourism minister, Hisham Zaazou to tell Reuters this in September:
“I will focus on the bulk of tourist movement. While desert tourism is important, the highest figure for it was 350 thousand (people a year). Sharm El Sheikh, on the other hand, received more than 4 million tourists at some point, on its own,” he said.
“I am going to work on everything related to those areas, from securing them and all else.”
Good job securing that…
The country is back to square one having barely recovered from the ‘second’ revolution of 2013, let alone the ‘Arab Spring’ uprising of 2011. And, somewhat more unsettling is the risk to the neighboring Suez Canal, the fastest shipping route between Europe and Asia and one of the country’s main sources of foreign currency.
Despite security efforts, there have been multiple attacks on the Suez Canal. In 2013, an Islamist terrorist group called Al-Furqan took responsibility for hitting merchant vessels passing through the Canal with rocket propelled grenades. This is a clear video of the attack, which happened in broad daylight:
It was the second attack in just under three days (the first was allegedly under the cover of darkness), and demonstrates one example of how Egyptian security forces have taken a reactive approach to military threats, rather than mitigating the risk. According to Stephen Starr, a journalist that wrote a summary of the security risks to the Canal, “the threat of serious attacks by militants—operations that could sink a major vessel and thus block the canal—is a real one.”
President Sisi has his eye on a mega $8-billion expansion of the canal that aims to double daily traffic by 2023 and increase annual revenues to more than $13 billion by 2023, from just over $5 billion in 2014. Yet, none of this is meaningful if the government continues to resist structural reform which has left the economy floundering for years. It is also resisting the simple fact that there was likely a bomb on flight.
Egypt will certainly need international support once again as foreign direct investment dries up, but officials are alienating themselves by mismanaging the crash inquiry. It is no secret that European countries are among the heavyweight influencers on the IMF board, a organization that has had on-and-off talks with Egypt for years. So, if Egypt really wants to dispel concerns from its donors, in the hope of sourcing funds, transparent investigations are required.
It is a dangerous time for Egypt. The latest reports to come out from Western governments blaming the crash on a bomb have shown Egypt’s worst fears may be true – the country has experienced one of its worst terrorist attacks. Now, the most likely scenario emerging is that a bomb was smuggled aboard the plane and exploded midflight, despite security and a relatively modern airport at Sharm El Sheikh.
At first, the death of 224 people in the plane crash was seen by the Egyptian government as a tragic accident, and at the very least a dent on the economy.
Egyptian officials’ vehemently denied any terrorist link, dismissing claims by a militant group linked to the Islamic State who said that they brought down the plane. In fact, their initial assessment was of no foul play, according to someone close to the Egyptian intelligence services who spoke with Rebel Economy earlier today, and they were especially certain that the plane wasn’t hit by a missile.
Yet, just a few days later, the same officials, with a growing sense of confusion, prompted an investigation into the flight, and began to survey the fuselage and other materials onboard, according to the same source. Egypt continues to outwardly deny any terrorist involvement.
However, one of the most lethal groups in the region are now within shooting distance of two of Egypt’s most important economic lifelines and foreign currency earners: the Suez Canal and Sharm El Sheikh, one of the last remaining tourist destinations considered an oasis away from the turmoil elsewhere in the country.
And despite Egyptian officials and political analysts insisting for so long that extremist groups in North Sinai, where the ISIS affiliate is hiding out, didn’t likely have access to surface-to-air missiles that could take down a commercial airliner flying at 30,000 feet, the worst case scenario – an onboard bomb – has occurred. Not only does this demonstrated that ISIS are getting more sophisticated, and bypassing controls and borders, but that the government had no clue it was happening.
After all, it’s not easy to get a bomb on a plane in 2015.
Sinai has always been a study of contrasts: in the south, it’s full of tourists, luxury resorts, scuba diving, and lots of foreigners. The north is shockingly different – rundown cities, outlaws and Islamic extremists hiding in the desert and in mountain encampments. But now, what’s worrying is the influence of ISIS in Sinai and their proximity to big targets. Up till now, ISIS’s ambitions were limited by their geography. The classic ISIS in Syria are a scary phenomenon, but they have had limited access to Western targets.
The Sinai contingent is like a pick and mix of targets for militant group. It’s physically close to Jordan, Israel and mainland Egypt – all of which have a lot of westerners coming through, including attractive targets for a group seeking to make a bigger name for itself on the world stage. What’s more, Sinai is somewhat lawless, and its coastlines are under-policed.
It is a very dangerous place for ISIS to have a foothold, and could turn the fortune of the country around within months.
The judge made his final call today, confirming the death sentence of former Egyptian president Mohammed Morsi, a crucial step in cementing the counter-revolution and the unravelling of the uprising that had brought him to power.
Morsi, who is now already serving a 20-year jail term for ordering the arrest and torture of demonstrators in 2013, was convicted of breaking out of prison during the 2011 revolution against the Mubarak regime. He has never denied that he broke out of prison, but why it merits the death penalty is hard to comprehend, particularly because he was being held in that prison without charges in the first place. The Grand Mufti of Egypt still has to confirm any death sentences.
Morsi was one of thousands that took advantage of a mass escape of prisoners from Wadi Natrun prison in the north of Cairo during seemingly lawless days at the start of the uprising.
Although we’ll never know exactly what happened in Wadi Natrun during those turgid and chaotic days when all eyes were on Tahrir Square, Rebel Economy can offer a rare peak.
What follows is a complete translation of the testimony of former intelligence chief Omar Suleiman during the trial against Hosni Mubarak. Suleiman, who died in 2012 at an American hospital, gives his account of what happened during those historic 18 days following Mubarak’s deposal, including Morsi’s prison break.
The huge disclaimer is that this is wildly biased against Morsi, but still, it is amazing how current these views sounds. Back in 2011, the idea that foreign powers conspired to cause an uprising in Egypt was considered preposterous by just about everyone but the so-called “Feloul”, or remnants, of Mubarak’s National Democratic Party. Now, these views are much more widely held in part due to the widespread efforts to undermine every detail of the Morsi regime.
As with all testimony from legendary spymasters, read with a grain of salt.
Here it is in English – this is a professionally translated transcript of the Omar Suleiman’s testimony.
Please cite a reference to Rebel Economy if you are reposting or referring to these documents.
An Egyptian company’s plan to import gas from Israel is nothing but a pipe dream, according to documents viewed by Rebel Economy and interviews with people familiar with the situation.
Last week, Dolphinus Holdings signed a seven-year deal to buy an estimated $1.2 billion of natural gas from Israel’s Tamar field, but negotiations haven’t included the firm that actually owns and operates the pipeline, East Mediterranean Gas, according to a letter sent from EMG to Israel’s largest gas sellers operating on the offshore Tamar gas field.
The letter states that “EMG was not a party to the reported deal and was not included in such negotiations. There are no discussions held between EMG and Dolphinus on such a transaction and there have been no negotiations held in the past.”
This is just the latest twist in the story of the notorious Egypt-Israel gas pipeline, one that has been cursed with misfortune and represents a tangled web of espionage, global diplomacy efforts, big business and even terrorism (the pipeline has been bombed more than a dozen times by unknown militants in Sinai).
EMG, which built and operated the pipeline, was founded by one of Egypt’s most controversial tycoons, Hussein Salem, but is now owned by a consortium of companies including the American billionaire, Sam Zell and the Thai government’s state gas company, PTT.
Several Egyptian government officials were imprisoned over the deal after the uprising and the new government cut off its contract with EMG (claiming it missed payments). That set in motion several high-profile international arbitration cases by EMG against the government. EMG is seeking billions of dollars in damages for its shareholders.
The last four years have been disastrous for Egypt’s economy, including its energy sector. The country is now in such desperate need of gas that it agreed to buy liquified natural gas at a huge cost from European sellers.
It’s ironic that a pipeline originally designed to send gas into Israel for Egypt’s profit is now being considered as a way for a hobbled Egypt to buy gas from Israel. The rationale is easy: importing gas over a 90-km pipeline from a neighbour is much cheaper and requires less infrastructure than bringing in LNG from abroad (which requires specialised plants to turn it into useable gas).
But this deal cannot take place without EMG’s approval and that seems nearly impossible, according to a person familiar with the discussions.
That it because there is no way EMG’s shareholders will agree to drop their arbitration cases against Egypt, the person said. The Egyptian government said that would be a prerequisite of approving any deal to import gas from Israel. Even so, the Dolphinus deal would only represent annual revenues in the tens of millions of dollars for EMG, versus billions won from arbitration settlements.
To make matters even more complicated, EMG owes the state-owned National Bank of Egypt in excess of $170 million, according to documents reviewed by Rebel Economy, a loan it took out early on to build the pipeline. It was paying it off until the Egyptian government cancelled EMG’s contract in 2011. (A classic case of Egypt inadvertently screwing itself.)
So for this deal to work, shareholders of EMG would not only need to forego the possibility of billions of dollars of compensation but also agree to not get paid anything for years because any money EMG makes would be used to pay down its debts.
That may be one of the reasons why they have been excluded from the negotiations, but it’s only the tip of the iceberg for this messy non-deal.