Naguib Sawiris wants to plop hundreds and thousands of Syrian refugees on isolated islands for sale off the coast of Italy or Greece, and use this manpower to build a new country that he would own. Almost at the same time as the billionaire philanthropist was giving an interview to CNN, saying he “cannot just sit … and do nothing…and pretend it’s not my problem,” Egyptian security forces gunned down at least 12 tourists and guides in Egypt’s White Desert. It was an accident, of course.
For a telecoms magnate worth approximately $3 billion, it is hard to dismiss Sawiris, especially as the UN call this the worst global refugee crisis since World War II. But the motive behind this plan is questionable when Sawiris’ agenda in one country – his home in Egypt – does not align with his interests elsewhere.
In Cairo, the Sawiris family, who control the Orascom conglomerate spanning telecommunications, construction, tourism, industries and technology, have turned a blind eye to the ruthless crackdown of their fellow countrymen and women, thousands of whom are political prisoners, in exchange for a favourable business environment, where big corporations are rewarded while small business is plagued by red tape. Egypt still ranks 112th on the World Bank’s ease-of-doing-business index, trailing behind Zambia and Swaziland. But the disappearing of people and the silencing of dissent is not a worthy cause.
Sawiris told CNN (taken from a rough transcript):
I would build temporary housing and temporary school and temporary hospital, you know. And then we will use these people and provide them jobs to build a new city on the island, to build this island, you know. Because this war is not going to end in weeks or in months. It may be years even.
The exodus of millions of Syrians is devastating, and perhaps solutions should be unconventional, but is Sawiris the right person to be proposing and controlling such a project, when he is politically implicated in Egypt’s own disastrous government? And then there’s this fantastical promise of a haven for Syrians, that in reality, will become a massive refugee camp, lacking in infrastructure, on an island cut off from society. This is a temporary solution, at best, and at worst, it is an over-populated, under-served fiefdom controlled by a telecoms magnate. This is not how cities and societies are built.
Arab economies have become addicted to “unearned income streams” including fuel exports, foreign aid, and remittances. This fragile social contract has led countries across the Middle East and North Africa to increase subsidies on fuel and food at times of social unrest.
This is their “original sin” and is fast becoming a liability, say economists Adeel Malik and Bassem Awadallah in this important paper for the World Development journal recently made available to the public.
“External revenues—whether derived from oil, aid, or remittances—profoundly shape the region’s political economy” which only serves to “stiﬂe economic and political incentives, turning economies away from production to patronage”.
So as a result, on a per capita basis, the Middle East and North Africa received the highest overseas development assistance in 2008 ($73 compared to $49 in sub-Saharan Africa), the paper says. North Africa has consistently been the largest recipient of net aid per capita since 1960s (see table). These aid ﬂows are largely driven by geo-political considerations.
The authors point out that despite the differences in cultures, economies and geographies across the Middle East and North Africa (Algeria to Syria for example), there are “at least ﬁve common denominators that cut across commonly recognized conceptual boundaries—for example, whether an Arab state is a monarchy or a republic, labor-scarce or labor abundant, resource-rich or resource-poor”. One of these is the dependance on exports and aid. They spell out the other connecting factors:
First, all across the Arab world both economic and political power is concentrated in the hands of a few.
Second, the typical Arab state can be characterized as a security state; its coercive apparatus is both ﬁerce and extensive.
Third, the broad contours of demographic change and the resulting youth bulges are fairly common across the region.
Fourth, Arab countries are mostly centralized states with a dominant public sector and, with few exceptions, weak private enterprise.
So what went wrong?
Malik and Awadallah go back to the Ottoman empire where centralized bureaucratic rule worked hard to prevent the emergence of autonomous social groups, and therefore valuable and profitable connections across the region and a strong private sector:
The Arab world has inherited an unfavorable and divisive legacy. The roots of a weak private sector run deep in history. Merchants were politically weak under the Ottomans.
A robust private sector was more feared than favored. When business thrived, it remained eﬀectively in the hands of foreign merchants and local minorities. This was politically expedient: foreign merchants beneﬁted from the economic privileges granted by rulers, but
seldom challenged their authority.
The break-up of the Ottoman Empire into a multitude of independent states created new political boundaries, but, over time, these became permanent economic boundaries.
The consequence of this divide meant that when globalisation was unavoidable, Arab economies did not integrate with one another but only with global structures of trade and finance. It’s no surprise then that trade agreements in the Mena region are well below the global average.
The key concluding questions is: can the region harness its natural geographic strengths to build a future based on trade and production, or does it fall back on the geography of rents and patronage? Access to the coast, Europe and a large labour force are attractive opportunities that emerging markets would jump at. So why has the Arab world failed to integrate?
Revolutions across the region are an “apt reminder that the prevailing model has reach its expiry date”, they say.
“This model built on oil and aid fortunes—and a leviathan state—is fast becoming a liability.”
I’m off to sample cuisine typical of the US Midwest (think corn dogs, turkey and assorted berries).
Rebel Economy will be back in early December. If you feel like it, send a brief guest post to email@example.com or to me personally at firstname.lastname@example.org.
Perhaps you have an axe to grind about President Morsi and his economic plan (or any other Arab leader/government for that matter)? Perhaps you want to write about Sudan’s underreported economic malaise, or the real reason behind Iran’s currency crisis? Maybe the uphill struggle for Bahrain’s labour movement against the authoritarian government may be more up your alley?
Consider Rebel Economy your soapbox.
Till next time,
Yesterday, Egypt’s president Morsi surprised us again by announcing he had opened an account named “Egypt’s Renaissance” and was urging citizens and expat Egyptians to donate to boost the economy. What a utopian idea? Here are some issues related to the move:
– a desperate plea that is unlikely to garner a huge amount of money (does President Morsi expect citizens to donate billions of dollars to narrow the deficit?)
– most Egyptians don’t have a bank account (Nine out of 10 adult Egyptians don’t have a bank account, the Middle East’s lowest ratio apart fromYemen) immediately limiting the move to a few, basically well-off Islamists who voted for Morsi or well-off liberals, who are among the few that are not disgruntled with the Islamist-dominated government.
– The ministry of finance press release suggests that this account will also be used to deposit public cash that was pilfered by members of the former regime and recovered from abroad. Investigations reveal, however, that the Hosni Mubarak family were worth only several hundred millions of dollars, not billions. In fact, there is only about $1.2 billion in assets frozen abroad which authorities are trying to retrieve. All this suggests that a) it will take a long time to retrieve frozen assets, and related assets from other former regime members, b) that the amount abroad is relatively paltry and will not “save” Egypt.
– Final thought – this account reflects another move that will soon be forgotten. As Ahram Online points out, it is not the first scheme of its kind. In March of last year, the finance ministry opened a similar account at the Central Bank (account no. 25-01-2011) for citizens’ financial donations, but the total donations made was never announced (probably because there was none).
The government also tapped into patriotic appetites and attempted to sell land to expat Egyptians. That programme was expected to pump $2.5 billion into Egypt’s treasury pot and alleviate pressures on the currency. No concrete news on that yet.
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London-listed gold miner Centamin, which has its focus in Egypt, said this morning it was confident a court case which questioned its right to mine gold in Egypt will be resolved through an appeal process.
Last week an Egyptian court ruled that licence to operate Centamin’s Sukari gold mine was invalid. Rebel Economy described it as a partial win by the labour movement, which has held successive strikes and demonstrations against company management.
The whole case is falling apart day by day, as the oil minister and the Egyptian Mineral Resources Authority backs Centamin and supports a fast overturning of the ruling.
The court issued its ruling without having been presented as evidence with the contract signed in 2005 with the then oil minister giving the company operational rights in an additional 160km2 area, Oil Minister Osama Kamal said in an interview with Bloomberg.
Though an appeal was very likely, this case epitomises the difficulty of proving beyond doubt that a transaction was invalid. Even if the ruling is accurate, there is bound to be pressure from the government to overturn the ruling. It will be a test of how effective lawyers can be in questioning complex financial transactions.
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David Cameron, the UK’s Conservative prime minister, will land in the United Arab Emirates today as he begins a three-day tour of the Gulf in an attempt to rescue faltering trade alliances, the FT reports.
The delicate ties between the UK and Gulf were damaged when Britain was criticised for failing to “take a tougher line against Islamists, who have grown steadily in political power in the Middle East as dictators have been toppled over the past two years,” the report says.
But the trip “will sidestep concerns over regional security and human rights as [Mr Cameron] pushes British military exports in an effort to get the UK economy moving again.”
Although the prime minister is expected to raise issues such as Saudi Arabia’s record on suppressing minorities and political opponents, the overwhelming focus of the trip will be commercial.
Just in case you didn’t know, the priority for the US and UK is mostly commercial and not in the interests of human welfare.
The ugly military power of the Gulf, including the United Arab Emirates, Saudi Arabia, Qatar and Bahrain was exposed during the “Arab Spring”.
It wasn’t a huge surprise that this oil-rich area was well-equipped with arms, but it did show that “it is presidents and colonels, not kings and princes, who have proven most vulnerable to social upheaval,” a note from Foreign Policy Research Institute sums up.
This subject, worth a post of its own, is one worth keeping an eye on if only for the United States’ (and the United Kingdom in some cases) involvement in supporting these autocracies for their own benefit.
The work, which will be done at the Robins Air Force Base in Georgia, offers a glimpse into the long-standing ties between the US and Saudi Arabia.
And with most deals, it’s win-win. For the US, Saudi Arabia’s military power helps protect it against Iran, while for Saudi it is about maintaining rule.
Saudi Arabia used F-15s and Apache helicopters in late 2009 to fight Muslim Shiite rebels who crossed the border from Yemen and seized territory inside the kingdom.
Despite sporadic demonstrations, little opposition has mobilised against ruling families in the Gulf, aside from Bahrain, where the threat to monarchical rule was countered with local security forces helped by the Gulf Cooperation Council troops.
Order is maintained, for now.
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Finally some real work on energy subsidy reform from Egypt. The North African nation Egypt has taken a first step to getting expensive energy subsidies under control, a key component of an economic reform programme the cash-strapped government is presenting to the IMF to obtain a loan, Reuters reported.
The cabinet received on Thursday the preliminary results of a pilot programme to use ration cards to distribute cooking gas to the needy instead of selling it on demand, Petroleum Minister Osama Kamal is quoted as saying.
The government spent 96 billion Egyptian pounds, or 20% of all expenditure, on subsidising petroleum products, including cooking gas, in the financial year that ended on June 30.
The ration system, where gas cylinders are only given out to those with the correct cards, has only been tested in four governorates (there are just under 30), but a start is better than nothing.
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Egyptian investment bank EFG Hermes aims to expand into Turkey, Iraq and Libya and plans to grow its asset management arm by 50% after the completion of its joint venture with Qatar’s QInvest, it said on Friday.
Ok, the ambitions sound reasonable enough, especially considering EFG Hermes is one of just a handful of investment banks that is plying to become more of a regional power.
However there is a big glitch to this plan. EFG’s top two chief executives, Yasser El Mallawany and Hassan Heikal are currently under investigation for alleged insider trading. The controversial case, which also implicates the once untouchable Mubarak sons, has been dragging on since the beginning of this year.
In a post-revolutionary climate, where transparency and accountability are King, will EFG’s reputation hold up, even with Qatar’s influence?
Perhaps it’s time to let go of the weakest link? Yes, EFG has so far protected Heikal and El Mallawany, but the damage has been done and the bank is effectively being taken over by the Qatari firm. There’s nothing to it now but to fire the CEOs.
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The latest James Bond blockbuster has the villain, not as a giant with metal teeth, or a Japanese man adept at throwing a steel-rimmed bowler hat, but as a super cyber hacker.
This is today’s national security risk and the US and some countries in the Middle East have become the main targets.
The National’s Tony Glover sets out the US defence secretary’s main fears and new strategy against cyber crime. Leon Panetta, has warned that America is facing the prospect of a highly targeted and orchestrated attack by adversaries of the United States, which officials identified as China, Russia, Iran and militant groups.
Mr Panetta outlined a nightmare scenario in which the US suffers a string of disasters such as derailed passenger trains loaded with lethal chemicals, simultaneous contamination of the water supply in major cities and a shutdown of the power grid across large parts of the country.
Fraud is down globally and the proportion of companies that suffered an incident slid to 61%, from 75%, according to a report published today from Kroll Advisory Solutions that was prepared with the Economist Intelligence Unit.
“But the biggest threat is from within,” the report says, with two-thirds of the firms hit by fraud in the company’s survey citing an “insider” as a key perpetrator.
Things start getting interesting in the Middle East section of the report, which is mainly focused on the Gulf states, including Saudi Arabia. Though Gulf state respondents reported a lower prevalance of fraud than the global average, the “main perpetrators of fraud in the Gulf differ in some ways from the norm.”
In case you were wondering, Egypt continues to attract investment from foreign oil partners and the billion of dollars they are owed by the Egyptian government is not putting them off, the head of the state-run gas company Egyptian Natural Gas Holding Co told Bloomberg yesterday.
Chairman Mohamed Shoeib was so positive in fact that he said his company’s debts to overseas partners “aren’t that high,” without being more specific.
It’s a strange comment at a time when Egypt clearly owes even small and medium sized oil companies such as UK-based Dana Petroleum (not to be confused with the UAE-based Dana Gas) tens of millions of dollars.
Governments are prepared to spend billions of dollars to protect the state. Dictatorships will spend even more to maintain the status quo.
One day in July, a blogger from the United Arab Emirates discovered the extent his government would go to make sure his voice was silenced.
Ahmed Mansoor, an outspoken blogger from the UAE and a member of the “UAE Five” — a group of Emirati activists jailed last year for criticizing government leaders — opened a suspicious e-mail with a Microsoft Word attachment that, when opened, “deployed spyware that could monitor his every keystroke, record his passwords, social networking and instant messenger chats and even his voice conversations through his computer’s microphone,” Nicole Perlroth writes in this great New York Times article.
There are two recurring economic problems in Egypt: the demands of the massive labour force and the energy subsidy issue. Both are old problems but have been propelled into the limelight post-revolution because budgetary constraints have intensified the situation. These are discussed below.
In just the latest bout of labour unrest, industrial action has significantly disrupted operations at an Egyptian port run by DP World, the world’s third largest port operator.
This post has been updated to include an emailed statement from the Bahrain Economic Development Board.
He is a hero to protestors; a villain to the government.
Earlier this month, Nabeel Rajab, Bahrain’s most talked-about human rights activist, was jailed for 3 years: one year for each of three cases related to participating in peaceful protests on the island kingdom.Nabeel Rajab, Bahraini human rights activist, by Conor McCabe for Flickr, July 2011[/caption]
The bold words only served to cement his image as both a warrior against an oppressive regime in the eyes of a majority Shi’aa population and a criminal and reprobate who was asking for trouble, in the eyes of a minority Sunni-led government.
But, as with most fairytales and their fair share of villains and heros, the story is not always as clear cut as “good” and “evil”.
In the version of Little Red Riding Hood that we’re all familiar with, the tale ends with Riding Hood being saved from the clutches of the wicked wolf by the woodsman.
In fact, the original French version (by Charles Perrault) was not quite as nice. In this version, “foolishly riding hood takes the advice of the wolf and ends up being eaten. And here the story ends. There is no woodsman – no grandmother – just a fat wolf and a dead Red Riding Hood,” Jamie Frater writes in the blog Listverse.
The future of Bahrain is similarly grim.
Mr Rajab will remain in prison for the time being; protestors are still shouting in the dark. Influential governments will continue to endorse the ruling regime and big cheques will encourage these same institutions to look the other way, tarnishing the image of Washington and London because of their support for some pro-democracy uprising but not others that are not in their interests.
It’s also understood that more than a year after the worst protests in Bahrain when many banks and the stock exchange temporarily shut down, bankers, corporate staff and businessmen are still leaving the island. Business is weak and the outlook is dismal.
“Nothing has changed much,” said one Bahraini who recently left the country.
“Those [banks and financial institutions] who wanted to leave have already left, and it’s very unlikely that financial institutions looking to set up shop in the region will choose Bahrain,” the Bahraini said.
Several foreign banks have moved from Bahrain after a political crisis between the majority Shi’aa and minority Sunni-controlled government. The latest figures from Bahrain also show the economy shrunk in the second quarter with many important sectors impacted by political unrest that has weighed on the tiny Gulf island and oil producer:
Adding fuel to the fire, Bahrain’s jewel in the crown, the Grand Prix went ahead as normal this year but garnered only $295 million, according to the website of the government-run Economic Development Board (EDB), against the usual $500 million earned. The race was cancelled a year earlier.
The EDB has however shrugged off the bad press and instead said Bahrain’s GDP growth will reach 4% this year. In an emailed statement, an EDB spokesperson said:
Bahrain’s economy continues to grow in spite of very challenging global economic conditions, and Bahrain remains on track for another year of economic growth in 2012. The EDB expects GDP growth to reach approximately four per cent in 2012
Whilst certain sectors have inevitably been impacted by regional and global circumstances, other sectors and specific sub-sectors such as manufacturing, ICT, asset management and insurance, continue to achieve sustainable expansion.
The spokesperson said a number of private sector investments in Bahrain shows the outlook remains positive. Among the most recent investments are Dubai International Capital’s Ishraq Holding, which set up a Holiday Inn Express in Bahrain with $40 million of financing.[caption id="attachment_481" align="alignright" width="300"] Talal Al Zain heads PineBridge Investments, by World Economic Forum for Flickr, 2012[/caption]
PineBridge Investments, an asset management company headed by former Mumtalakat CEO and Gulf Air chairman, also recently opened their MENA headquarters in Bahrain.
Readers may want to note that PineBridge Investments’ non-executive chairman is Mervyn Davies, former UK Minister of State for Trade, Investment and Small Business.
But there is no denying today the situation is desperate:
The majority Shia population continues to lead pro-democracy protests against the minority Sunni-led government. Clashes have become increasingly violent in recent months, but unrest has largely been confined to the Shia villages on the outskirts of the capital, saving central Manama’s business district from the instability that left lasting damage after the height of the protests in February and March 2011,” writes Simeon Kerr, who has reported extensively on Bahrain for the Financial Times.
There may not be barricades up in Manama’s financial district but problems persist. Bahrain’s carefully developed image as a transparent and business-friendly centre has been badly damaged.
No happy ending is on the horizon.