Category Archives: Currencies


This is PART 1 of a two-part series by Isabel Esterman on government securities: treasury bonds and bills, and other debt instruments sold by a government (including Egypt) to finance its borrowings. 

In the last two years the Egyptian government has been leaning more heavily on domestic banks in an attempt to narrow its deficit and fund its borrowing needs.

Borrowing money from lenders is pretty much like an individual borrowing money from a bank: the bank evaluates your credit history, you borrow X dollars and pay Y% interest. This makes it relatively easy to have critically important public conversations about whether taking on a loan is a good idea.

Bond issuances aren’t actually that much more complicated, but the process is usually obscured by specialised jargon — YTM, coupons, issuances, securities, t-bills. People’s eyes glaze over, and transactions involving billions of dollars of public funds get shunted off to the financial pages.

Instead of headlines like “Government borrows LE6 billion at 14.77%” we see “CBE offers 6 billion in t-bills; average yield climbs to 14.77%”.

What is more, we often conflate government borrowing via treasury bond and bills (a key element of fiscal policy) with the secondary market for bonds (buying and selling government debt), which is a specialized, complicated financial tool where bonds are traded between investors.

Confusing the two is a problem because it means that people who aren’t bond traders (most of us) also aren’t kept well informed about how much money the government is borrowing.

The below is an introduction to government bonds and their purpose. We will explain more about what this means for Egypt in Part 2, coming tomorrow. 


CARTOON: The Economics Of Egypt Central Bank’s Interest Rate Hikes

Last week, Egypt’s Central Bank decided to hike interest rates to slow down inflation and curb a sliding pound. 

But what are the economics behind the move? What does it really mean to raise interest rates and what impact does this have?

Contributor Isabel Esterman has drawn up a genius cartoon to explain all.

She says that this is, of course, hugely over-simplified. In order to keep it at a manageable length, the cartoon glosses over things like how fractional reserve lending actually adds to the money supply, repo and discount rates (we don’t need to get that technical anyway…), as well as examples of when these theories don’t work – all topics for another day.

Still, we hope this is enough to make people feel more confident tackling something like the CBE Monetary Policy Committee’s most recent press release.


Egypt’s Untold Diesel Story

The people at Cairo-based brokerage firm Pharos Holding have sent investors a thorough breakdown of the reasons behind Egypt’s diesel crisis.

Titled “Diesel Crisis: Unquoted Figures and Untold Stories. The Secret behind Diesel Shortages in Egypt” the document sheds light on the country’s fuel crisis.

Pharos Research sourced diesel import data from the main government statistics agency, the Central Agency for Public Mobilization and Statistics (CAPMAS) to understand the nature and magnitude of the current diesel crisis. They found that diesel import statistics are extremely alarming in terms of magnitude, reasons and implications.

[caption id="attachment_1404" align="aligncenter" width="580"]diesel1 Egypt has been importing diesel at a much higher rate than normal[/caption]

Firstly: Diesel imports have been rising sharply and now make up about half of consumption, or around 9% of imports. 

The media quotes Egypt diesel imports at around 25% of annual consumption. However, CAPMAS figures show that the true figure jumped to around 50.0% and accounted for around 9.0% of Egypt’s merchandise imports, up from only 2.5% in 2007.

Secondly: There is a growing rift between EGPC and foreign partners. 

The reasons behind the surge in diesel imports and the current diesel shortage crisis is down to growing debts to foreign oil partners from the state oil company, Egyptian General Petroleum Corporation (EGPC).

But this rift has forced foreign partners to export their share of crude oil directly to third parties rather than sell it to the EGPC and risk further debt exposure. This has not only deprived Egyptian refineries from feedstock but triggered a surge in imports from foreign suppliers. 

[caption id="attachment_1405" align="aligncenter" width="580"]Foreign oil partners have been exporting their share out rather than selling it to EGPC Foreign oil partners have been exporting their share out rather than selling it to EGPC[/caption]

While the minister of petroleum said earlier this week outstanding liabilities to foreign partners have been settled ($ 6.5 billion), Pharos says liabilities have most likely been paid using the deposits of Qatar, Saudi Arabia and Turkey. Hence, Egypt has only managed to rollover rather than settle debt.

That’s not the only problem.

Although Egypt may have averted full erosion of its foreign reserves by delaying payments to foreign partners (yet at the expense of reputation and delays in upstream investments), it will not be able to defer payments to foreign suppliers (for imports). 

What is alarming is that Egypt has run out of cash for diesel imports due to the inability of EGPC to secure payment guarantees from local banks, as Rebel Economy has reported before.

If this continues and foreign reserves inflows remain muted, Egypt will have no diesel for energy subsidies.  It faces the prospect of food price inflation and social unrest that will pose huge challenges to political and economic stability.

This is exactly why Egypt has no choice over implementing energy subsidy reforms. The government must make normal Egyptians pay higher prices for fuel so that the administration can supply subsidies to those who really need them. 

Then & Now: February 11th 2011/2013

“Nightmare over!” said tailor Saad el Din Ahmed, 65, in Cairo. “Now we have our freedom and can breathe and demand our rights. In Mubarak’s era, we never saw a good day. Hopefully now we will see better times,” said Mostafa Kamal, 33, a salesman.

Egypt protests topple Mubarak after 18 days, Reuters, Feb 11, 2011

“We are not here to celebrate but to force those in power to submit to the will of the people. Egypt now must never be like Egypt during Mubarak’s rule,” said Mohamed Fahmy, an activist.

Five die in Egypt violence on anniversary of uprising, Reuters, Jan 25, 2013

Two years ago today, Egyptians made history sweeping Hosni Mubarak from power and sending a warning to other dictators across the world.

But as Egyptians and close watchers of the nation are well aware, the country’s political and economic situation is not better than 2011, and has in fact deteriorated in many areas.

The numbers speak for themselves.


As the political crisis has deepened, the currency has dipped to such a point that the public have lost faith in the pound and turned to the black market, the jobless rate has increased and the country’s twin deficits in the budget and balance of payments is putting further pressure on the level of GDP growth, which has slowed down to about 2%.  The government is well on its way to exceeding its original deficit target of 7.6% of GDP for this fiscal year.

Foreign direct investment may be in the green, helped by one-off investment deals including France Telecoms of Egypt’s Orascom Telecom Media and Technology, but the level is nowhere near the $4.1 billion in FDI Egypt recorded in the first half of 2010.

Before the crisis, Egypt had been receiving about $1.15 billion a month from tourism, $375 million a month from foreign direct investment and $1 billion a month from worker remittances and other private transfers, according to central bank figures.

Remittances, an important source of hard currency, are one bright spot in an otherwise negative outlook. But it is not enough to comfort economists and investors who say Egypt must apply harsh austerity measures for the fiscal situation to improve.

Capital Economics made some important points in a note this morning:

We estimate that fiscal tightening of 3% of GDP is needed just to stabilise the debt ratio. However, measures to put the public finances onto a more sustainable path will only be possible if the political situation calms down. Until then, the fiscal position is likely to worsen.

The deterioration in the Egyptian fiscal position is mainly due to rising wage costs and subsidy expenditures. The former have risen by 26% so far this fiscal year compared to the same period last year while the latter are up by a whopping 38%. We suspect that the government has been recruiting more workers and increasing pay in an attempt both to stem the rise in unemployment (which is now higher than before the start of the revolution two years ago) and to quell civil unrest. Particularly worrying is the fact that expenditure on wages and jobs is extremely difficult to pare back.

Large budget deficits over the past couple of years have, in turn, resulted in higher levels of government debt. Total government gross debt now stands at over 75% of GDP. This, coupled with rising interest rates on public debt (due to higher risk premia caused by political instability), has led to a 30% y/y increase in debt interest payments. These payments now account for over 20% of total government expenditure.

Talks with the IMF, apparently due to re-start soon, are likely to focus on fiscal consolidation.

There is no easy way of getting out of this situation. Egypt will have to impose some level of taxes on the middle class, cut spending on subsidies while enforcing new measures that mean cheap fuel gets to those who most need it, and reform the bloated public sector, where employees are overpaid and inefficient.


Yesterday Rebel Economy interviewed Ahmad Shokr, one of the founding members of the Drop Egypt’s Debt campaign, who argued that Egypt’s fiscal problems won’t be solved with a loan from the International Monetary Fund (IMF).

Today, we hear it from the horse’s mouth (so to speak).

Masood Ahmed, the Middle East and Central Asia director at the IMF, explains how the Fund can help “Cut Deficits Without Damaging Growth Too Much” in a new IMF blog in Arabic.  Here is the bulk of the blog post in English. It seems to be a strong position that the IMF is taking to tell the Middle East “We are here to help you solve your problems”.  You may also note that Mr Shokr’s argument is actually not that much different to Mr Ahmed’s:

As in other parts of the world, governments in a number of countries in the Middle East and North Africa region face a growing urgency to take politically difficult steps to bring down large fiscal deficits. Bringing down deficits is, of course, not an end in itself. But in many countries, deficits are too large and will eventually come to hurt growth and financial stability. At the same time, measures to trim the deficit can have a negative effect on economic growth in the short run. So, the question is what measures policymakers should take to reduce budget deficits while minimizing the negative impact on economic growth and the most vulnerable in society.

In response to social demands and rising food and fuel prices, governments across the region have increased spending on subsidies and wages significantly over the past two years. Public revenues, however, have been declining for a variety of reasons, including the slowdown in regional economic activity. As a result, oil-importing countries in Middle East and North Africa have seen a large increase in their chronic budget deficits, which grew to an average of more than 8½ percent of GDP in 2012 from about 5½ percent in 2010.

Such an increase in fiscal imbalances is quite difficult to sustain over a long period of time. In fact, looking ahead, there is little room for additional government spending.

Choosing the best path

Typically, deficit reduction calls for, on the one hand, measures to increase government revenue and, on the other, to cut spending. Increasing revenues can be realized either by raising tax rates or by broadening the tax base. The latter can be achieved by implementing reform measures to make the tax system more efficient and to address tax evasion and tax avoidance. Reducing government expenditure entails cuts in both current (non-interest) and capital spending.

Rebalancing the composition of revenues and expenditures may help lessen the adverse side effects of deficit cuts on growth.

1) On the revenue side, property and sales taxes are the most growth-friendly measures for raising revenues. In contrast, trade and income taxes are the least growth-friendly. Egypt is among those oil-importing economies in the region with the greatest scope to rebalance taxes toward more growth-friendly instruments.

2) On the expenditure side, social benefits and subsidies are the least growth-friendly measures, whereas capital spending tends to be the most growth-friendly instrument. Spending, especially on subsidies, is largest in Egypt, Jordan, Lebanon, Morocco, and Tunisia, suggesting that there is scope to lower such spending as a growth-friendly instrument for fiscal consolidation. In contrast, productive capital spending is smallest for Lebanon, Sudan, and Tunisia, suggesting that there is space to increase such spending.

A key fiscal priority for the MENA region is to replace generalized subsidies with more targeted social safety net instruments. Besides being very costly, generalized subsidies do not support the poor well. For example, one-third of energy subsidies in Egypt benefit the wealthiest one-fifth of the population. And, our research suggests that the situation is similar in many other countries in the region.

Quality also matters

Improving the quality of government spending more generally is critical. This would help make room to boost investment spending and reduce fiscal deficits that are increasing debt levels and crowding out lending to the private sector.

Structural reform policies that aim to enhance the overall productivity in the economy and, hence, raise growth potential could also offset the negative impact of fiscal consolidation.

Successful implementation to both enhance the quality of spending and rebalance the composition of revenue-raising and expenditure should help create more and better employment opportunities, and lead to faster economic growth in the MENA region that would benefit all.


This morning brokerage firm Pharos Holding emailed an interesting note analysing the Central Bank of Egypt’s monetary policy measures, and why they don’t agree with it.  Here is the note in full. It is important because it reminds readers and close watchers of Egypt that the Central Bank is an opaque institution that says one thing, and does another.  The key takeaway is that the Bank is in fact targeting a specific exchange rate, contrary to previous statements that it is not doing this and leaving the market dependant on supply and demand. That means the pound is OVERVALUED and again at a level that cannot be sustained with falling reserves: 

PHAROS: Yesterday, the CBE executed four simultaneous measures to limit further EGP depreciation:

1) reducing the cap on EGP depreciation in FC auctions from 0.5% to 1 piaster

2) reducing the number of auctions to two per week; every Monday and Wednesday

3) indirectly inducing (via moral suasion in our view) the two largest public banks and CIB to raise long-term deposit rates by 50-100 bps

4) removing the 1% commission rate on FC purchases.

The new CBE governor met with the prime minister to discuss possible means to limit further downward pressure on the EGP. The above steps suggest that the move from EGP 6.15 to 6.75 per US$ was not intended to be a move to free float as earlier announcements had suggested. Instead, it was a managed devaluation with an initial target in mind. This policy is known as a “crawling peg”, whereby a currency is pegged to an anchor currency (US$ in this case) but the peg is adjusted occasionally to reflect changes in macro dynamics.

Why We “do not Like” a Crawling Peg

1) It contradicts with initial statements made by the CBE governor and accordingly raises credibility concerns. The current governor had earlier explicitly noted that he will not target a specific exchange rate,

2) The current rate is not a rate at which supply and demand are in equilibrium. There are tight capital controls and demand is artificially capped by import rationing (primarily evident in imports of diesel),

3) If the market views the current rate as not sustainable, which is evident by an active black market, investors will actively pursue arbitrage opportunities to benefit from the black market premium (ranges between 5.0-10.0%),

4) It confuses monetary policy formulation and disrupts the carry trade because foreign investors cannot predict whether interest rates will be used to defend the currency (so go up) or to stimulate recovery (so go down),

5) Finally, if the new rate fails to present itself as a new equilibrium at which current and capital account transactions are cleared, credibility of the CBE will be significantly shaken and the whole regime will collapse. This is what exactly happened between 2000 to 2003, until the floatation decision was taken on 29 Jan 2003.

Concluding Remarks: Breather rather than a new equilibrium

The 6.75 target is only a breather rather than a new equilibrium, in our view. It cannot be sustained without a significant improvement in foreign currency inflows, which we do not see at present.

Guest Post: Why We Don’t Support Egypt’s IMF loan

Rebel Economy asked Ahmad Shokr, a Ph.D. candidate in Middle Eastern history at New York University and a founding member of the Drop Egypt’s Debt campaign, to lay out the key problems critics have with a planned International Monetary Fund loan to Egypt. 

[caption id="attachment_1221" align="aligncenter" width="580"]Drop Egypt's Debt ( Drop Egypt’s Debt [/caption]
  • 1. You are a vocal opponent of the International Monetary Fund loan. Can you explain why you are against it? Is it because of Egypt’s history of troubled relations with the Fund or the lack of transparency over the negotiations, or both?

Our campaign is mainly opposed to the policies that will be linked to the IMF loan. The government reform program (to be approved by the IMF) is aimed at achieving macroeconomic stability through three interrelated sets of policies—spending cuts, higher taxes, and greater exchange-rate flexibility. For the most part, ordinary Egyptians will foot the bill for these policies in the form of higher sales taxes and inflation (caused by the currency depreciation and, eventually, the subsidy cuts). These austerity measures will come at a time when many Egyptians had hoped for an improvement, not a deterioration, in their livelihoods.

Everyone agrees that Egypt faces serious macroeconomic challenges in the short term—namely its budget and balance of payments deficits. To begin solving these problems the government should have acted differently:

First, it should have fostered a more genuine and inclusive societal dialogue to reach a wider consensus on the required reforms and how their cost would be shared across society. Second, it should have begun to implement at least some policies earlier rather than relying on short-term palliatives (like depleting its foreign-exchange reserves to protect the value of the pound and relying on periodic cash injections from the Gulf). The government did neither. Now, Egypt faces a deteriorating economic situation and a reform program for which average Egyptians will pay most of the cost. And that’s to say nothing of the ongoing political mismanagement that contributes to Egypt’s economic troubles.

  • 2. Egypt’s economy has sunk even lower in the last few weeks. What are the steps Egypt needs to take to get on the right track? What is your version of the Muslim Brotherhood’s “Renaissance Project”?

Over the past year and a half our campaign has argued for more progressive policies in two key areas:

1) We have advocated a fairer distribution of the costs of fiscal restructuring. The government could do this by relying less on indirect taxes (that impose an equal cost on all consumers regardless of their ability to pay) and making a stronger effort to levy more taxes on the rich (for example, a more progressive income tax scale) and their business assets/activities (some ideas that were proposed have included a dividend tax, a one-time wealth tax, and a stronger property tax).

2) We wanted to see a clearer vision for what the government plans to do with the money it earns from the spending cuts/higher taxes. All the versions of the reform program that I have seen are centered on deficit reduction. Notwithstanding the government’s vague promises of job creation and inclusive growth, there is no clear plan for how much of that money will be re-directed towards investments, quality services and infrastructure, safety net programs, etc. A real reform program would have a much broader vision than simply adjusting public finances. There are important lessons to be learned from Europe, and other parts of the world, that a singular focus on deficit reduction through austerity is not the road to economic prosperity.

Any program for long-term economic improvement would have to look beyond immediate challenges, like Egypt’s twin deficits, and think further into the future. To my mind, two of Egypt’s biggest long-term challenges are employment and income distribution. 

We hear a lot from government officials about the need to revive the economy—by attracting investors and restoring economic growth—but less about the government’s vision for how the benefits of that growth (if it is restored) would be shared across society.

The experiences of many economies, especially over the last twenty years, tell us that trickle-down effects do not happen on their own. They require an infrastructure—minimum wage legislation, good labor laws, strong unions, a national strategy to promote investment in labor-intensive sectors—to spread the wealth of society more equally. At this stage, Egypt’s leaders have no clear vision for accomplishing any of those things. Until they do, any talk about investor confidence and economic growth will sound all too reminiscent of the late Mubarak years.

  • 3. There is a lot of talk about corruption in Egypt. Are there clear steps to start changing the system to end the era of the “soft state”?

To talk about fully eradicating corruption may be somewhat fanciful. State-business networks exist in virtually every country and the key question is what mechanisms exist to monitor these networks and hold them to account. Among the political leadership, there’s a lot of talk about establishing oversight and accountability procedures, but little of substance has been done so far. In 2012, Egypt fell six places in Transparency International’s annual Corruption Perceptions Index. Among those in power, there has been an ongoing preference for resolving corruption cases involving Mubarak-era figures through deal-making and reconciliation.

I would also caution against how the term “corruption” is employed. In Egypt, there’s a tendency to blame the ills of the past on corruption. Egyptian officials (and even international funders and experts) sometimes reduce Egypt’s variegated and complex challenges to the problem of corruption as if it were a root cause of economic misery. Sure enough, cronyism and kleptocracy are real problems that have damaged Egypt economically.

But the problems I’ve described above—income inequality, the uneven distribution of economic entitlements and responsibilities, job insecurity and weak social protections—are not simply the result of unethical economic behavior. They stem from the way economic decisions are made and, in particular, the adoption of certain neoliberal policy choices. It is erroneous to assume that ending corruption would somehow solve these problems by allowing free-markets to function efficiently and fairly.

Egyptian leaders need a more fundamental change in their perception of the country’s core economic challenges and a different vision for the future. Unfortunately, I am not optimistic, at least in the short term.

Breakfast Wrap: Egypt’s New Market Policy, Dangerous Yield Game

Could Egypt’s new central bank governor Hisham Ramez, who replaces Farouk Al Okdah, signal a shift in policy from tightly controlling the exchange rate of the pound – as it has done for nearly a decade – to introducing a more balanced currency market driven by supply and demand?

Yes, the business community tells Al Arabiya’s Carina Kamel.

“The priority now is to have an orderly currency market,” said Osama Mourad, a financial analyst. “We have been able to get rid of the responsibility of the exchange rate which was seen clearly from the new governor’s statement.”

Over the weekend, Ramez sent a strong message to Egypt and the financial world, who are closely watching developments in Cairo, that “the bank’s number one priority was overseeing a ‘balanced’ currency market and that the central bank ‘has all the tools needed to intervene'”, according to the Al Arabiya report.

He sought to reassure  jittery investors (and simultaneously enter himself into the club of Egyptian officials unruffled about the state of the economy) by saying “there is no reason to worry” about price movements on the Egyptian pound which has lost nearly 6% of its dollar value in the past two weeks. “The situation is not out of control.”

Yet, control is the last word that comes to mind when describing Egypt’s economy.

With demand for dollars still high, almost daily dollar auctions have continued to drive the pound lower.

The scale of dollarisation was also highlighted when Egypt signalled that the $2 billion loan from Qatar arrived in December, implying that the money had already been eaten up defending the currency.

What is more worrying, however, is how the transaction exposes the fragility of Egypt’s economy:

“Without Qatari aid, Egypt was on course for a full-blown financial crisis and, perhaps, a forced deal with the IMF by February,” Said Hirsh of Maplecroft said, according to Reuters.

Once again, Egypt has been bailed-out by its big brothers, giving the government little incentive to make much-needed reforms, including in the costly energy subsidy system.


Another indication of how Egypt is living hand-to-mouth is the constant rollover of debt.

Egypt’s Finance Ministry said on Thursday it would offer $1 billion of one-year treasury bills for auction on January 14. This would effectively roll over maturing US dollar-denominated bills from last year.

Though it alleviates pressure on Egypt’s creaking budget, the country will now have to refinance around $2.5 billion in 2013.  Dependance on local banks to buy into these securities is highly unsustainable. 

Economists have said that the rate of spending on interest payments on bonds and bills is now exceeding the rate at which the government spends on energy subsidies. Egypt is spending about 15% or 16% of its budget on these payments now. A considerable amount.

The upside is that Egypt’s treasury yields are attractive to foreign investors who look at emerging and frontier markets. Egypt has among the most attractive yields of the frontier markets, according to Silk Invest, the London-based investment banking boutique:


Silk Invest CEO Zin Bekkali says in a note to investors:

“Interest rates in developed markets have reached unsustainable levels in both the government and the corporate sectors. Frontier markets currently offer one of the worlds’ most interesting fixed income opportunities with the potential for double digit returns in hard currency, local currency as well as for corporate bonds.”

Egypt’s Households Key To Dollar Crisis

A somewhat contrarian Reuters analysis this afternoon should calm those panicked by Egypt’s currency woes:

The key to preventing a messy devaluation of Egypt’s pound may lie with the country’s households, whose dollar holdings are being eyed by foreign investors as a critical gauge of trust in the authorities.

So in fact, it is “not the withdrawal of foreign investors from a market but the flight of local households and businesses from a currency that is instrumental in [the pound’s] collapse,” according to the article.

That means that despite what all those big foreign investors might be saying about the collapse of the pound, take no notice, because it’s ordinary Egyptians who are critical to avoiding a currency crash.

“Increased household dollarization and a run on the currency, that’s the big risk,” says Jean Michel Saliba, BofA-Merrill Middle East economist, who estimates households account for more than 70 percent of deposits in the banking system.

In contrast, foreigners hold a mere 3-4 percent of the local bond market, according to other estimates from Barclays.

This is an important indicator of how public perception is crucial and inherent to economic stability. The Morsi administration’s handling of the IMF loan negotiations – which have lasted almost 20 months, have contributed to worries over the economy.

But it was a series of bad decisions (1) pushing through an unpopular constitution, 2) issuing an “all-powerful” decree and then backtracking and 3) announcing tax hikes, and then suddenly suspending them) that have only served to undermine confidence in the economy and push panicked Egyptians to swap their pounds for dollars.

Essentially, if the government wants to stop the run on reserves and the pound, President Morsi must convince the nation he is in control. Right now, that’s exactly what the public do not see.

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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


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

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

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

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

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

Breakfast Wrap: Lights Out for Egypt? A Show for the IMF, Qatar Defence Plans

If the latest comments from the government can be believed, the decision to enforce a 10pm curfew today for shops and restaurants will be postponed “indefinitely”, local development minister Ahmed Zaki Abdeen told Al Masry Al Youm.

Read this as: “We have realised that this move, meant more as a symbolic gesture to save energy and appear proactive, will actually be more detrimental than helpful for the domestic economy, and we have decided to abandon these plans for now.”

Aside from creating another situation where a lack of clarity is unnerving for the business community, whatever the government does now is likely to be criticised.  They either back-track from an original decision, making the president and his ministers look weak, or they stick to the plan which will cost the economy billions of dollars.

◊ ◊ ◊

On the bright side negotiations over a loan with the International Monetary Fund has pushed the Egyptian pound to a near 8-year low, Reuters reports.

Now is the time to swap all your pounds for US dollars! Personally I hold my cash in Sterling, the strongest currency in the world (Disclaimer: this is not investment advice, and I am not an investment advisor, but I am British and I have a strong alliance to the Great British Pound.)

Traders said that by letting the pound slip, the government seemed to be signalling to the IMF it is prepared to be flexible over the value of the currency, which many analysts say is substantially overvalued against the dollar, the Reuters report said.

This may be a comfort to the IMF delegation in Cairo, but it’s only the tip of the iceberg.  Some evidence must be offered to the IMF to show the government is full-steam ahead with energy subsidy reform, the biggest drain on the country’s finances and one of the reasons why foreign reserves have been down (i.e. to fund petroleum imports).

◊ ◊ ◊

Citadel Capital, an Egyptian private equity outfit, are slowly moving in to fill the gap that is forecast once the country’s subsidies package diminishes. 

The company’s $3.7 billion investment in the Egyptian Refinery Company was one way of doing this (refine at home rather than import more expensive already refined fuel).

Another is through investing $200 million on barges, ports and storage facilities that are already handling shipments of wheat, cement and phosphate, Bloomberg reports.

Why? Because as the subsidy reform hits Egypt’s transport system and cheap fuel is a thing of the past, trucks and railroads will cost more to run, tipping the scale towards cheaper modes of transport like barges.   

Within five years, the share of cargo moved by river may jump to at least 15%, [from just 0.5%] said Stephen Murphy, a managing director at the company.

Savvy, those Citadel Capital guys.

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Another group of shrewd, albeit indulgent, investors are the Qataris.

This FT piece on the reasons behind Qatar’s decision to create a 50 million Euro fund to invest in some of Paris’s poorest suburbs shines some light on the investment strategy behind the Gulf state.

The French political right and left united in disapproval.

Yet the reaction shows a fundamental misunderstanding of the way Qatar operates globally and what it is trying to achieve. The pattern of its international relations shows its investments are geared primarily to three things: profit, security and building a brand that appeals to its western allies despite not being a democracy.

It’s not until you get to the end of the piece that you realise why it’s singing the praises of Doha.

The author is deputy director for the Royal United Services Institute (Qatar), and would probably get fired if he wrote anything else. But still, interesting read in Qatar’s defence plans.