Category Archives: Banking

Egypt: How Not To Float Your Currency

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.”

Bank of ISIS: How to Bankrupt It

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 Wrap: US indebted to Egypt, Libya Lawless and In Economic Ruin

  • EGYPT 

– US faces substantial losses if Egypt aid halted Reuters 

Finally a story that reflects pragmatic ties between the US and Egypt that go far beyond the politics. Washington has been considering whether to continue its US $1.23 billion in military assistance, but while the aid institutionalises the political links between the two countries, the money at stake is arguably much more costly if this bond was broken.

A particularly talkative senior Pentagon official told Reuters:

“There’s a whole bunch of contracts out there. The bills keep coming in and we’ve got to be able to pay them somehow otherwise we go in default.”

Apparently last year, when the Obama administration decided to continue military aid to Egypt despite its failure to meet pro-democracy goals, US officials cited as one of their reasons the fact that the termination costs could have exceeded $2 billion. 

Egypt foreign currency reserves inch up to $18.91 billion – Ahram 

Reserves crept up by $34 million in August to reach $18.91 billion, the Central Bank of Egypt said, reflecting how billions of dollars of cash from Saudi Arabia, the United Arab Emirates and Kuwait was used to defend the currency’s value and pay for imports.

Last month, international reserves jumped $4 billion to $18.88 billion after Gulf countries injected $12 billion in aid. But the minimal increase in foreign reserves this month shows how much of that cash is being used to plug financial gaps. 

  • LIBYA 

Libya has moved into lawlessness and ruin The Independent 

A round-up of how Libya has slumped into its worst economic crisis since the fall of Gaddafi. The key reason is that Libyans are increasingly at the mercy of militias who are dictating the direction of the economy.

But in addition, “one of the many failings of the post-Gaddafi government is its inability to revive the moribund economy,” the author says. “Libya is wholly dependent on its oil and gas revenues and without these may not be able to pay its civil servants.”

This report on Libya’s economy, that Rebel Economy linked to earlier this week, sets out a handful of priorities for the government to avoid falling into economic crisis. One of those is to diversify the economy away from oil.


Women in Egypt: Undervalued Resource

Guest post by Daria Solovieva, a freelance business reporter based in Cairo. Read her articles here.

There is no denying that women in Egypt—Egyptians and foreigners alike—face big challenges on the street, let alone at work and home.

Harassment and discrimination in and outside the workplace is common and is barring enough women from entering male-dominated sectors like manufacturing or engineering.

In a UN Women 2013 study, 99.3% of Egyptian women surveyed admitted to being sexually harassed, but  in 85% of the cases, none of the bystanders to the harassment incident intervened to help.

While the media has focused attention on resolving endemic sexual harassment, officials and activists often do not discuss the economic benefit of increasing women’s participation in the formal economy.

[caption id="attachment_1750" align="aligncenter" width="484"]UN Women 2013 UN Women 2013[/caption]

The latest data from Egypt’s government statistics agency, CAMPAS, shows Egypt’s women are severely underemployed — 24.7% of the women in Egypt’s labour force are unemployed compared to the 9.6% of males.

As the country’s economy slowed, the number of jobs declined and the competition for jobs between men and women intensified.

Yet amid the on-going political standoff and struggling economy, mobilising female employment never emerged as a priority for Egypt’s government while the female workforce is recognised as a growing economic force.

“We’re at a tipping point of women’s engagement in the economy, as we move from advocacy of women to the smart business of real investment in women,” says Sallie Krawcheck, a former Bank of America executive and recent buyer of 85 Broads network, a women’s network founded by Goldman Sachs executives.

Over the next decade, about a billion women are expected to enter the global workforce, making their participation and engagement in the economy all the more significant.

But is Egypt ignoring a potential massive source of economic growth, as other options of financing and growth are running low?

According to a study by Booz Allen consulting firm, raising the level of female employment to male levels could boost Egypt’s GDP by as much as 34% percent.

“We were very conservative with our calculations, but still we got this number,” says Mounira Jamjoom, a senior researcher at Booz Allen & Co.

Even if women choose to work part-time, and they have less labour productivity than men (given men were in the workforce before women), the impact on GDP would still be high, Ms Jamjoom.

And propelling women into the workforce could have more a dramatic impact on the lives of millions of Egyptians.

“Economics shapes behaviors, sexual and reproductive. It will change dynamics within marriage, give young people empowerment, help them to realise autonomy also in their private lives,” says Shereen El Feki, author of Sex and the Citadel: Intimate Life in a Changing Arab World, who spent five years researching sexuality in the Arab region.

But perhaps the biggest hurdle of all is not the government’s reluctance to address women’s unemployment, but the attitudes of a women’s place in society at large.

These issues are not exclusive to Egypt or the Middle East for that matter.

“The difference comes in what the culture defines for men and women about what prioritising family over work means,” says Robin J. Ely, economics professor at Harvard Business School.

“For men, it’s about being a breadwinner. A man might prioritize family over work by taking a bigger job. This plays out the opposite way for women.”

Rethinking these definitions has the potential to yield dramatic economic results for Egypt, but is the country ready for a cultural overhaul? 

Breakfast Wrap: Egypt “Quickie Court Cases” Must Stop, South Korea Eyes Egypt, KSA Jobless

A case against Egypt’s former housing minister Ahmed El-Maghrabi has been overturned, Ahram Online cited the state news agency MENA as saying.  El-Maghrabi, like many of his Mubarak-era colleagues, had been charged with squandering and profiteering from public funds.

Though a culture of corruption had been allowed to fester under Mubarak, increasingly there has been a criticism of the speed at which post-revolution trials took place. Lawyers say that though there is a case against some of these former politicians, the “witch-hunt” that has ensued against some people has led rushed cases where evidence is flimsy.  That’s not to say all these people are innocent, but more an indication of how the need to satisfy the public’s demands for justice has led some public prosecutors to become compromised and rush through cases without care of presenting valid evidence.

Cases involving large companies such as Talaat Moustafa, the property company, have also seen cases rushed through then overturned.

If Egypt is to have a reborn culture of transparency and communication, these cases must be addressed in the way they deserve; painstaking analysis and extraction of foolproof evidence. These cases are often complex and convoluted and more often than not, money is hidden in various offshore vehicles that are hard to track.  A quickie court case is not going to address and eradicate the crime in the way the public would want.  


South Korea plans to invest US$583 million in Egypt, South Korean ambassador Young-so Kim said on Tuesday, according to Egypt Independent. The ambassador said that the trade exchange volume between the two countries has reached $2.4 billion.  In October, Samsung, the South Korean electronics giant, said it would build a LE1.7 billion plant in Beni Suef (it’s first plant in the Middle East and North Africa) in a move that will create 1,400 new jobs.  Similarly to the Chinese, countries like South Korea benefit enormously from Egypt’s cheap land and relatively cheap labour.



Egypt plans to raise LE10.5 billion ($1.7 billion) over the next week from Treasury bill sales as it prepares for the second round of a referendum on a new constitution, Bloomberg reported.  Egypt continues to offer government securities to predominantly domestic banks to plug its budget deficit. What is more worrying however, is that interest payments that the government must pay on these bills. Remember last year’s yields on bills that reached almost 16%? Well those yields are now coming to maturity, and the interest payments on those make up about 15%-16% of the budget, economists have told me. What’s more, the rate at which the government is having to pay those interest payments off, is actually exceeding the rate at which the government pays for energy subsidies. That is a huge additional burden on the budget. Luckily for the government, yields have now eased off so the securities Egypt sells today won’t cost as much when they mature.


Talking of energy subsidies (as is often the case on Rebel Economy), it is becoming more apparent by the day that Egypt’s fuel crisis is going out of control. Egypt is becoming increasingly dependent on fuel imports as it uses oil to pay off debts instead of refining the crude at home, Reuters reports, in a downward spiral that is piling pressure on its deteriorating finances. Rather than refining crude at home and selling it at a reasonable price, for years Egypt has been selling on very expensive fuel at very subsidised prices.

Egypt spent around $9.7 billion to import oil products in the year to end-June 2012, about $2.8 billion more than in the previous year, data from the Central Bank of Egypt shows.  However, David Butter, a long-time Middle East journalist then pointed out that the Central Bank appeared to have significantly modified their oil trade figures:


Whether or not the Central Bank corrected their figures or fudged them to appear more favourable is not clear.


Meanwhile, imports are chronically higher than exports leading to a continuous trade deficit. Today Egypt, the world’s biggest importer, is seeking to buy at least 60,000 metric tons, Nomani Nomani, vice chairman of the state grain buyer, told Bloomberg. Bread subsidies, though not as severe as energy, are also a drain on the budget, but so far the government is loathe to make any changes for fear of riots.


Unemployment figures from Saudi Arabia reveal two long-running problems for the oil-rich state has: a large number of unemployed women (who are gradually being accepted into the workforce) and an unemployed immigrant workforce.  As a result, jobless numbers reached almost 2 million, according to Ahram Online’s report. Unemployment among women is exceptionally high in Saudi Arabia surpassing that of men by almost 30%, to reach a total of 1.7 million. Almost half of those women hold university degrees, the Saudi labour ministry indicates. Meanwhile, recommendations are being made to employ these people in the private sector, rather than the public sector, where saturation is already very high.


In Dubai, Al Habtoor Group, the conglomerate with interests in  hotels, property and car dealerships, has called off plans for an initial public offering next year that could have raised up to $1.6 billion, The National newspaper reports. The company had been considering an IPO on the Nasdaq Dubai market, and a foreign stock exchange, next March or September.  It’s another blow to the Dubai financial market and the wider UAE financial community, which has seen almost no new listings since 2008.

Breakfast Wrap: Citadel’s New Energy Chief, Centamin Spat, Mubarak-Era Projects

Egyptian private equity outfit, Citadel Capital, has appointed petroleum industry veteran, Mohamed Shoeb, as Managing Director of its energy division.

It is the latest sign of how Citadel is quietly moving toward filling a gap in the energy market which is likely to be left after a reform of the country’s energy subsidies.

Shoeb is the former head of the state-run gas company, Egyptian Natural Gas Holding Company (EGAS), and prior to that was the vice Chairman for operations at the state oil company, Egyptian General Petroleum Corporation (EGPC).

The problems attached to both companies do not reflect kindly on Shoeb; EGAS was at the centre of a politically controversial cancellation of a gas contract to Israel, while EGPC is facing a potential bail-out from Egypt’s banks because of a mounting debt pile to foreign oil companies and banks for energy exploration.

However, the former EGAS head brings experience and knowledge of the nation’s state energy industry (and its specific challenges) that would be hard to find elsewhere.  Importantly, he has deep connections in the sector that will come in very useful for Citadel at a time when its most high-profile investments are in the energy market. These include:

– a $3.7 billion financing package for the Egyptian Refining Company project 

– A joint venture with Qatari investors to import liquefied natural gas into Egypt from mid-2013

UPDATE – This morning Citadel Capital sent a statement saying it had sold one of its investments, in a further sign that the private equity firm is focusing its strategy around five sectors including energy and transportation.

Its portfolio company National Petroleum Company Egypt Ltd. sold National Petroleum Company Shukheir Marine Ltd. to Sea Dragon Holding Ltd., a subsidiary of Canada’s Sea Dragon Energy.

“This transaction is the first of a number that will see us exit non-core portfolio and platform companies as part of our transformation over the coming three years into an investment company,” said Citadel Chairman Ahmed Heikal.


A spat between EGPC and Centamin’s Sukari goldmine appears to be almost resolved after customs authorities on Sunday allowed an export shipment of 1,600 kilograms of gold to the Netherlands, Egypt Independent reports.

Shipment had been halted by Egyptian customs because the petroleum and finance ministries had said Centamin owed the authorities back-dated payments for fuel. Centamin denied this and said its payments were up to date.

Josef El Raghy, chairman of Centamin, has faced labour strikes and fuel shortages that have forced the firm to halt production twice this year.

It’s a stark reminder of both a highly bureaucratic state where the lack of a signature can halt valuable exports that could shut a company down, and how fuel shortages at EGPC have the potential to trickle into important industries across Egypt.


One clear characteristic of the Morsi administration’s economic programme is its resemblance to Mubarak-era projects.  The following is no exception.  Egypt Independent reports:

Prime Minister Hesham Qandil has tasked the agriculture, irrigation, electricity and investment ministries to begin implementing a project the government hopes will reclaim and cultivate a million new acres of farmable land over four years

The mega-project aims to build up wheat production by 25%, corn production by 15%, and oil production from 10% to 40%. Sounds ambitious. For many investors, this announcement may appear flippant, especially given the agriculture minister’s throwaway remarks that “the project aims to reach self-sufficient production levels”.  By when? And how? Critical questions such as this are almost never answered.
National Bank of Egypt, the country’s biggest state bank, will finance the project. NBE has increasingly become the “Bail-Out” bank of Egypt, supporting EGPC and stepping in when projects get pricey.
Perhaps this project has the more realistic traits.  Egypt’s renewable energy authority, (NREA) will offer 7, 622km sq of land for private sector investors to wind energy stations under the Build, Operate, Transfer (BOT) scheme, Daily News Egypt reports.
The BOT scheme has been used by Egypt regularly in the past to help get past the financing hurdle for big infrastructure projects. It means a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract.  The government benefits from the final product – in this case, wind energy.
Under the BOT scheme:
Land would be sold to private companies for a small fee under the BOT scheme, granting them use anywhere between 20 to 25 years. Products used by private companies in the production of renewable energy sources would not be subject to taxes or customs duties.
Land is being offered in the Gulf of Suez area (1,222 sq km), West Nile (4,200 sq km) and East Nile (2,200 sq km) regions.
Energy giant BP is seeking to change the terms of its contract with the Iraqi government for the Rumaila oilfield in a reflection of the challenges facing western oil companies as they try to ramp up oil production in a country still dogged by poor infrastructure, red tape and export bottlenecks, the Financial Times reports.
The company is asking to scale back production, underscoring “how a lack of infrastructure and bureaucratic problems are constraining the growth of Iraq’s oil industry, forcing companies operating there to re-evaluate their production plans”.  

Breakfast Wrap: Egypt’s 83 million Goldmine, IMF Slams Yemen, GCC Economy

There’s one aspect of Egypt’s business climate that will keep attracting buyers despite the uncertainty and political turmoil – that is the nation’s 83 million consumers; a goldmine for a business that wants to gain a strong foothold in the Middle East quickly.  

For European banks that have been hit by the Eurozone crisis, restructuring plans are underway, and that means offloading assets it can’t afford.

French bank Societe Generale is the latest to sell its Egyptian unit.  Yesterday afternoon it agreed to sell its Egyptian asset (NSGB) to Qatar National Bank as part of a larger restructuring plan for about $2 billion. A hefty sum considering most economists are putting a black mark against Egypt.

There’s more acquisitions on the way. BNP Paribas is seeking bids for the sale of its Egyptian retail arm, which is expected to generate between $400 million and $500m, and last year Standard Chartered came close to acquiring the Egyptian assets of Greece’s Piraeus Bank.

QNB didn’t over pay, says Emad Mostaque, strategist at investment bank Religare Noah in an emailed note this morning. But that’s good news, he explains:

Soc Gen agreed to sell their 77% stake in NSGB to QNB at 35.54 EGP for $1.97bn, valuing NSGB at $2.7bn. 

This is well below the close price of 39.35 EGP, but in line with the 6 month average price.  The acquisition at this price is clearly positive for our Top Pick QNB, who will take the lead in the funding of the $20bn of FDI in Egypt promised by Qatar.

It shows continued conservatism from Qatar on not overpaying for acquisitions by its national champions, something we have recently been a bit worried about. 


Elsewhere the news isn’t as rosy for Egypt. Gold miner Centamin has said it would would suspend operations at its only producing mine, located in Egypt, due to a short-fall in working capital and the inadequate availability of diesel at the mine.

The company said fuel supplies to the gold mine had reached critical levels.

The problem started because apparently Centamin owes about $65 million for diesel supplied from the Egyptian government between Dec 2009 and Jan 2010. Egypt said it wouldn’t supply additional diesel until the payment was made. Centamin says the claims are “illegal”.

EGPC has had a multitude of disasters related to the country’s expensive energy subsidy system.  Debts are rising to international/local oil companies and banks and high-ranking executives in the energy sector say EGPC is about to be bailed out by the state-run bank National Bank of Egypt.

In the meantime, Centamin was hit with a court case in October which declared its rights to operate the Sukari mine as illegal. It subsequently suspended gold exports pending a ruling.

Today, the company said it had obtained clearances to start exports again but it was still waiting for prior approval by the Minister of Finance.

“This approval has been urgently sought, but has not yet been forthcoming,” Centamin said.

A combination of mismanagement (on its own part for not paying for fuel, but also on the part of the Egyptian government for not approving exports) and bureaucracy has left Centamin unable to sell its gold.  It’s situations like these that worry foreign investors. 

Shares in Centamin are down almost by half since late October.


“Yemen is Egypt on drugs”, said one tweet yesterday as news emerged that the IMF had urged Yemen to make drastic changes to its energy subsidies which account for 8% of GDP and benefit mostly the richest.

The international bank did not hold back in its criticism of Yemen, whose energy subsidy system is appalling:

This large untargeted subsidy benefits the richest segments of the population disproportionately. Furthermore, the lower prices lead to substantial inefficiencies and smuggling, and contribute to environmental deterioration.

To further improve governance and transparency, the authorities are encouraged to further adjust these prices and launch other reforms to increase efficiency in the energy sector, while broadening the social safety net and increasing compensation for the poor through well-targeted cash transfers.

Egypt’s energy subsidies actually account for close to 10% of GDP, so perhaps it’s Egypt that’s on drugs.


If you have lived in the Gulf, this is a story that is glaringly obvious.

Some guys from Booz & Company, the consultancy firm, write in this FT article that “for the past four decades, the Gulf Cooperation Council states have shown remarkable economic growth, yet they are still challenged by a volatility they need to eradicate if they are to diversify away from oil and become powerhouse emerging economies.”

Surprise, surprise. The GCC states make a lot of money and don’t know how to spend it.

One of the many reasons the authors give for this “volatility” is the high proportion of people employed in unproductive, but highly-paid public sector jobs.  Booz & Company give some interesting recommendations including enforcing value added taxes, and creating opportunities for collaboration as a block instead of outright competition.

Sounds a little too optimistic for the GCC where rivalry extends from city to city, let alone state to state.

Breakfast Wrap: The Flaws of Egypt’s Anti-IMF Loan Movement

Egypt’s talks with the International Monetary Fund for a $4.8 billion loan should be frozen because the negotiations are secretive and lack popular support, Bloomberg has reported citing a letter released by 17 political parties, civil organizations and labour groups.

The letter is addressed from the Popular Campaign to Drop Egypt’s Debt, an umbrella group which has lobbied hard against the loan since negotiations started last year, the report says.

Among the signatories are three political parties affiliated with former presidential candidates, and a party set up by the Muslim Brotherhood’s youth wing, Bloomberg reports. The April 6th Movement, which took a leading role during last year’s revolution, has signed the letter, as well as unions active in Egypt’s labor movement.

The letter addressed to the prime minister Hisham Qandil and the IMF managing director Christine Lagarde says:

Loan negotiations process has “lacked transparency” from the government and IMF, talks continue in the absence of a parliament and public consultations have been “inaccessible”. 

“With little transparency and no clear economic program, the potential loan agreement continues to lack the ‘critical mass’ of support that the IMF requires as a necessary condition for financial assistance.”

Though an open debate about the loan is healthy, especially considering the rich history (Rebel Economy has produced a timeline covering three decades of Egypt-IMF talks) there are several flaws to this broader lobby movement, which will hinder any action against the loan.

Here are some issues that should be noted:

◊  The lobbyists, including the Popular Campaign to Drop Egypt’s Debt, see the IMF loan as one of the main causes of Egypt’s economic downfall today.  However, history shows that every IMF loan programme is followed by a period of economic liberalisation and boom. But then incessant corruption and bad economic decisions took force. In fact the IMF told Egypt in the 1970s that subsidies should go, now widely considered to be extremely bad for the economy. However the 1977 bread riots in Egypt led leaders to renege on that decision.

◊  Those opposing the loan misdirect their suspicion at the problem of rising external debt.  That’s not the real elephant in the room here. The real issue is spiralling domestic debt caused by a terribly indebted oil sector and mismanaged budget. External debt stands at about $33 billion.  Domestic debt is about $200 billion. That is mostly caused by energy subsidies, which use up to a quarter of the government’s spending (more than health and education combined, and then some).  If you want to talk about external debt, how about the billions of dollars not on the government’s balance sheet owed to oil companies for energy exploration? 

◊  The alternatives offered by lobbyists include solutions inherently linked to the IMF.  The most popular option is debt relief.  That solution has been popular with the IMF and Egypt in the past and probably will be in the future. For example in the late 90s, the IMF facilitated a framework for obtaining the cancellation of 50% of Egypt’s official debt from countries that are members of the Paris Club.

◊  Finally, as Nadine Marroushi, the reporter behind the story above points out:

The problem is lobbyists don’t seem to have a unified and articulated front on what economic policies need to be implemented. The fact that energy subsidies need to be reformed hasn’t taken root on a grassroots level. People are so focused on being against the loan for all sorts of reasons, many very justified (such as inflation), some just plain ignorant (such as chants that go: “we’re against the IMF’s conditions, we’re against the CIA), but there isn’t enough public discussion and pressure about what the economic problems are and how they need to be tackled. 

If these groups want any chance in delaying a loan, there must of course be some kind of unity in why the loan is opposed. The reactionary approach to anything linked with the IMF must stop if a coherent conversation can begin.

But of course the government are mostly at fault.  They have failed to open up a transparent dialogue on this negotiation process, leading to further suspicion and fury.  And, attempting to pass off the loan as Sharia-compliant is really not helping.

We know that fuel prices need to rise, and we know that Egypt needs international help (the US has in the past offered debt relief that has saved Egypt from bankruptcy). The government needs to address the nation clearly and firmly describing what needs to happen and why. We know big changes are going to happen because they must.

But the government’s weakness breeds suspicion and until Mohammed Morsi and his government can be strong, lobby groups and other political parties will hold them to account making the economic transition difficult.

Breakfast Wrap: Egypt’s “Fix-All” Economic Proposal, DP World Is Old and New Dubai

Egypt’s government has proposed tax changes and reform of energy subsidies to cut a budget deficit running at about 11% of gross domestic product, Reuters reported in a broad story outlining all the austerity measures.

An IMF team is in Cairo to negotiate a $4.8 billion finance package for Egypt. Talks are scheduled to end on November 14. Some of the key details are as follows and mostly concern the biggest weight on the economy, i.e. energy subsidies:

– total elimination of the subsidy on 95 octane gasoline, a step that will be officially announced this week

– raising the price of natural gas piped to homes, which will come into effect next month. The price increase would be “tiny”, officials have said. 

– The government has delayed a programme to use smart cards to distribute canisters of cooking gas, or butagas, by several months to ensure the system works properly

– The government would not touch the price of subsidised diesel

– The government had drafted a law to raise the sales tax on both commodities and services to 11% from 10%.  That includes tax on telephone services, and sales tax on other goods such as cars, cigarettes and tobacco, beer and alcoholic drinks, non-alcoholic beer, carbonated mineral water, coffee beans, water-resistant cement and reinforced steel. 

All these measures have already taken a long time to enforce, so it’s lucky Egypt’s lenders are putting up cash support.

Egypt said on Sunday it had received a third tranche of $500 million from Qatar, the same Reuters story said, part of a $2 billion loan secured by Egypt in August to help stave off a financial crisis and which Qatar is depositing at Egypt’s central bank.

The state news agency MENA quoted Egypt’s Finance Minister Mumtaz El-Saeed as saying the third tranche of the loan arrived on October 30 and that the last tranche was expected to arrive “soon” but did not give an exact date.

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But if donors fail to show up Egypt can rely on the thorough corruption investigators to retrieve billions of dollars and deposit in president Mohammed Morsi’s specially made “Renaissance” account (which generous citizens can also donate to..).

Egypt has recovered around $1.8 billion in funds and lands corruptly appropriated by Mubarak-era figures, Ahram Online reports.

The only other detail in the report is that governmental authorities are working on collecting up to around $9 billion from specific persons associated with the former regime and who have been found guilty of corruption.

The report, which is quite fuzzy on details, does highlight an important fact: Mubarak and his cronies were not as rich as initially thought. In fact, to insist that the former president and his family are worth at least $70 billion only serves to glorify a regime whose biggest failing was to neglect rather than shrewdly steal mountains of cash.

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An eye-opening profile into the chief executive of DP World, the world’s third largest ports operator in the WSJ.

Mohammed Sharaf’s personal relationship with ships started long before he began work in the industry, when, in 1961, he was shipwrecked at just six months:

MV Dara, the ship transporting him, his mother, brothers and sister sank after an explosion, just outside the port of Dubai. The incident cost Mr. Sharaf his mother, a sister and one brother, while another brother was considered lost. He survived with a caretaker before reuniting with his family in the U.A.E.

DP World, in some ways, represents the old and new Dubai.

It is a reminder of Dubai’s beginning as a successful sea port where a tiny settlement developed from a small fishing and pearl-diving community to an oil-rich sheikhdom.

But it is also an example of over-spending and spiralling debt.  The company currently has a net debt of $3.5 billion and has had to let go of some of its key assets.  Last month it said it was pulling out of its operations in the port of Vostochny, the largest container terminal in Russia’s far east and one of the key gateways for the country’s container network.

Breakfast Wrap: Is Egypt on the Cusp of Privatising Electricity? Taxes Take Two

Egypt’s first private-sector electricity station began operations in Alexandria yesterday in a move that appears to rattle, if not, break the mould of the seven state-run energy companies operating the nation’s power stations.

TAQA Arabia, a subsidiary of Citadel Capital, the Egyptian private equity firm, is running the $400 million station, which will have a production capacity of 11 megavolts and will be fuelled by natural gas.

Up until the early 1960s, electricity generation and distribution was practiced by private companies.  But in 1978, after a transition to nationalisation, seven regional electricity distribution companies were established under the supervision of Egyptian Electricity Authority, according to the Ministry of Electricity.

Some of these companies have now been split into two, but fundamentally Egypt’s electricity power supply is state-owned.

The station was acquired by TAQA as part of a Build, Own, Operate, and Transfer (BOOT) financing scheme.


BOOT projects are used to fund large-scale public infrastructure without affecting the country’s debt profile. Private developers are allowed to recover their costs of construction through ownership and operation of the plant for a fixed period before handing it over to the state.

Citadel’s project will provide power to a particular company (the state-owned Egyptian Styrenics Production Company, according to Ahram Online), but it could signal a move toward expanding this scheme elsewhere.

Egypt’s gas shortages have caused some of the worst electricity black-outs in recent years.  But with electricity demand growing, could Egypt consider limited privatisation of the electric power sector? 

◊ ◊ ◊

Three big announcements were made yesterday by the ministry of finance:

1)  Egypt expects to reach a loan agreement with the IMF by mid-December after talks this month focusing on limiting the budget deficit and a minimum level for its foreign reserves.  Ahram Online reported that the loan amount, initially set at $4.8 billion has been reduced slightly to $4.5 billion.

2)  The cabinet also approved a new 10% tax on major transactions on the Egyptian stock exchange, including initial public offerings (IPOs). The president said in August there would be no new taxes.

3) Finally, the cabinet approved two new tax brackets for high-income individuals. A 22% tax will be levied on individuals with annual incomes between 1 million Egyptian pounds and 10 million pounds, while annual incomes higher than 10 million pounds will be taxed at a rate of 25%.  The new structure looks something like this, according to Ahram Online:

First segment (LE5,000 – LE20,000): 10 per cent

Second segment (LE20,000 – LE40,000): 15 per cent

Third segment (LE40,000 – LE1 million): 20 per cent

Fourth segment (LE1 million – LE10 million): 22 per cent

Fifth segment (LE10 million and up): 25 per cent

The move to implement taxes on corporations and individuals after previous cabinets had failed to do so signals how the current government is forced to impose hard austerity measures that were initially played down.

The decision to levy a capital gains tax comes despite repeated assertions by bourse officials that such a tax would not be “suitable” for the Egyptian market.

Last year, the finance minister at the time, Samir Radwan, proposed a 10% tax on stock dividends in the hopes of offsetting Egypt’s rising budget deficit. But the proposal was quickly rejected by investors and bourse officials and Radwan was removed in a cabinet reshuffle.  How policies change.

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In my latest FT report, I write how escalating disputes between labour unions and employers in north Africa are threatening to derail economic recovery after the uprisings that ousted long-ruling dictators in the region.

Emboldened by the spirit of political change, thousands of workers in Egypt and Tunisia have staged a series of protests and are now in deadlocked talks with companies over demands for a minimum wage.

The piece puts together a series of examples of how the quest for a minimum wage can also be detrimental to a country’s economic fortunes.  But it also shines a light on the lack of conversation between labourers and their employers.

Some of the companies quoted in the report include Kraft Foods, which has commenced legal action against strikers and DP World, which shut down its Ain Sokhna port twice this year.

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As UAE-based Dana Gas restructures its $1 billion sukuk payment, averting a potential seizure of its Egyptian assets, the “region’s debt market barely blinked,” according to this Reuters feature on sukuk, or Islamic bonds.

Not long ago, a billion-dollar payment miss would have triggered a crisis of confidence in the market; now, it is almost ignored.