The judge made his final call today, confirming the death sentence of former Egyptian president Mohammed Morsi, a crucial step in cementing the counter-revolution and the unravelling of the uprising that had brought him to power.
Morsi, who is now already serving a 20-year jail term for ordering the arrest and torture of demonstrators in 2013, was convicted of breaking out of prison during the 2011 revolution against the Mubarak regime. He has never denied that he broke out of prison, but why it merits the death penalty is hard to comprehend, particularly because he was being held in that prison without charges in the first place. The Grand Mufti of Egypt still has to confirm any death sentences.
Morsi was one of thousands that took advantage of a mass escape of prisoners from Wadi Natrun prison in the north of Cairo during seemingly lawless days at the start of the uprising.
Although we’ll never know exactly what happened in Wadi Natrun during those turgid and chaotic days when all eyes were on Tahrir Square, Rebel Economy can offer a rare peak.
What follows is a complete translation of the testimony of former intelligence chief Omar Suleiman during the trial against Hosni Mubarak. Suleiman, who died in 2012 at an American hospital, gives his account of what happened during those historic 18 days following Mubarak’s deposal, including Morsi’s prison break.
The huge disclaimer is that this is wildly biased against Morsi, but still, it is amazing how current these views sounds. Back in 2011, the idea that foreign powers conspired to cause an uprising in Egypt was considered preposterous by just about everyone but the so-called “Feloul”, or remnants, of Mubarak’s National Democratic Party. Now, these views are much more widely held in part due to the widespread efforts to undermine every detail of the Morsi regime.
As with all testimony from legendary spymasters, read with a grain of salt.
Here it is in English – this is a professionally translated transcript of the Omar Suleiman’s testimony.
Please cite a reference to Rebel Economy if you are reposting or referring to these documents.
An Egyptian company’s plan to import gas from Israel is nothing but a pipe dream, according to documents viewed by Rebel Economy and interviews with people familiar with the situation.
Last week, Dolphinus Holdings signed a seven-year deal to buy an estimated $1.2 billion of natural gas from Israel’s Tamar field, but negotiations haven’t included the firm that actually owns and operates the pipeline, East Mediterranean Gas, according to a letter sent from EMG to Israel’s largest gas sellers operating on the offshore Tamar gas field.
The letter states that “EMG was not a party to the reported deal and was not included in such negotiations. There are no discussions held between EMG and Dolphinus on such a transaction and there have been no negotiations held in the past.”
This is just the latest twist in the story of the notorious Egypt-Israel gas pipeline, one that has been cursed with misfortune and represents a tangled web of espionage, global diplomacy efforts, big business and even terrorism (the pipeline has been bombed more than a dozen times by unknown militants in Sinai).
EMG, which built and operated the pipeline, was founded by one of Egypt’s most controversial tycoons, Hussein Salem, but is now owned by a consortium of companies including the American billionaire, Sam Zell and the Thai government’s state gas company, PTT.
Several Egyptian government officials were imprisoned over the deal after the uprising and the new government cut off its contract with EMG (claiming it missed payments). That set in motion several high-profile international arbitration cases by EMG against the government. EMG is seeking billions of dollars in damages for its shareholders.
The last four years have been disastrous for Egypt’s economy, including its energy sector. The country is now in such desperate need of gas that it agreed to buy liquified natural gas at a huge cost from European sellers.
It’s ironic that a pipeline originally designed to send gas into Israel for Egypt’s profit is now being considered as a way for a hobbled Egypt to buy gas from Israel. The rationale is easy: importing gas over a 90-km pipeline from a neighbour is much cheaper and requires less infrastructure than bringing in LNG from abroad (which requires specialised plants to turn it into useable gas).
But this deal cannot take place without EMG’s approval and that seems nearly impossible, according to a person familiar with the discussions.
That it because there is no way EMG’s shareholders will agree to drop their arbitration cases against Egypt, the person said. The Egyptian government said that would be a prerequisite of approving any deal to import gas from Israel. Even so, the Dolphinus deal would only represent annual revenues in the tens of millions of dollars for EMG, versus billions won from arbitration settlements.
To make matters even more complicated, EMG owes the state-owned National Bank of Egypt in excess of $170 million, according to documents reviewed by Rebel Economy, a loan it took out early on to build the pipeline. It was paying it off until the Egyptian government cancelled EMG’s contract in 2011. (A classic case of Egypt inadvertently screwing itself.)
So for this deal to work, shareholders of EMG would not only need to forego the possibility of billions of dollars of compensation but also agree to not get paid anything for years because any money EMG makes would be used to pay down its debts.
That may be one of the reasons why they have been excluded from the negotiations, but it’s only the tip of the iceberg for this messy non-deal.
A collection of “inspiring” quotes from some of Egypt’s biggest international investors have been making the rounds on social media:
“Advice: Stop whining. The future will come down to the private sector. … This is a democracy with an enormous amount of legitimacy. I know what an illegitimate government looks like and smells like.” —Timothy Collins, CEO, Ripplewood Advisors
“You don’t commit to a $12 billion investment unless you believe in what is going on in the country.” —Bob Dudley, Group CEO, BP
“Everyone decides on which risks he’ll bite into, and in Egypt, I’ll bite into any risk, any day.” —Emaar Chairman Mohamed Alabbar
“I wish we had as many opportunities in Europe as we have in Egypt” —Joe Kaeser, President and CEO, Siemens
Rebel Economy cannot verify whether these are real quotes or made-up by people who got a bit too much sun in Sharm.
It is an impressive display of support and a vote of confidence for Egypt, the “democracy.” But as Egypt basks in the financial and political support of the world, as deal after deal is signed, and $138 billion dollars of investment is secured for the country in just a couple of days, the truth behind this high-profile economic conference in Sharm El Sheikh is a little harder to swallow.
The floor-to-ceiling glossy signage declaring, somewhat ambiguously, “Egypt the Future”, ignores the fact that Egypt needs to do a lot more than ask for investment. The tourism industry, which at one point contributed over 10% of GDP, is in a pathetic state: the number of visitors last year was a third below the level of 2010.
But more critically, it is the bones of the country that are creaking. Egypt needs power, proper roads, better and more schools, hospitals and housing. Jobs are scarce and the ones available are low quality and pay below what is considered an internationally acceptable minimum wage.
The population is predicted to grow to 116 million by 2030. Egypt’s president, Abdel Fatah El Sisi, wants to ditch the 1000-year-old Cairo, for a brand-spanking new $45 billion, Dubai-style capital in the desert. But we all know that’s pie in the sky.
So what about all these deals? The Gulf has promised $12 billion to Egypt. The reality is that the country has spent $12 billion several times over in the last three to four years. What is another $12 billion going to do but keep Egypt operating weakly at a unsatisfactory level.
But most importantly, most of the companies investing are ones already in the country (BP, Siemens, ENI, etc), and all these Gulf companies (Masdar, Emaar etc) are merely doing as their government’s tell them – “Keep the Brotherhood out.’
Officials, business people and Egyptians are genuinely excited for the future, there’s no denying judging by the inordinate number of Sisi Selfies, and exclamation marks punctuating lofty ideals about the country. But the multi-billion dollar PR push to showcase the North African nation as a place worth pumping money into betrays the truth, not just because of the country’s inescapable human rights atrocities but because Egypt is lacking the bread (literally) and butter infrastructure it needs to survive.
— Mohamed El Dahshan (@eldahshan) March 15, 2015
Sissi said so himself in this bizarre interview with the Washington Post’s Lally Weymouth where he talks about himself in the third person (He said, “Sissi reflects the popular will of Egyptians.”). He tells Weymouth that the country needs $130 million subsidies to support 90 million people:
Where can we get the money to provide for these needs? Who would come to invest in this country if it is not stable? We have an overwhelming unemployment rate of 13 percent.
So what is his response? More money of course. Another $300 billion to be exact. This economic conference is not The Future, it is a mirage that shines the light away from the population’s plight, where thousands are wrongfully imprisoned and thousands more are still hungry, with no access to basic resources and education.
One person asked on Twitter: Does investing in an economy of a potentially unstable and authoritarian regime make business sense? It’s not business anymore. It’s politics when it comes to the Gulf and it’s cautious agreements, with disclaimers as long as scrolls for the companies involved.
A private equity fund launched by Gamal Mubarak managed to reel in millions of dollars of investment from Egypt’s elite, revealing the depths to which political and business connections ran as he began rising in stature in the late 1990s.
According to a document obtained by Rebel Economy, Gamal Mubarak’s $54 million Horus I Fund, created in 1997, attracted some of the country’s most controversial businessmen including steel fugitive tycoon and Mubarak-confidante Hussein Salem, steel magnate Ahmed Ezz, who was acquitted in June after being charged with monopolising the country’s steel market, and the ex-CEO of Egyptian investment bank EFG Hermes, Hassan Heikal. Heikal is a defendant in an insider trading case involving both of the Mubarak sons. His former colleague, Yasser El Mallawany, who is still officially an employee of EFG, is another investor in the Horus Fund.
The fund, which was operated by EFG Hermes and invested in Egyptian projects and companies, attracted millions of dollars of investment from members of Egypt’s old guard, some of whom have been targeted in corruption cases since the fall of Hosni Mubarak in 2011. Although there is no evidence the fund engaged in corrupt activity, the connections between the people named as investors on the account has never been properly investigated by the Egyptian authorities.
The list of individuals and companies published above raises questions that have so far been left unanswered by Egyptian investigators.
The document, which details how much individuals and companies committed to the fund at the time of launch, also provides a window into the everlasting influence of Mubarak’s old guard and their long-standing ties to Gulf nationals in Saudi Arabia, Kuwait, the United Arab Emirates and Qatar.
It represents the beginning of Gamal Mubarak’s foray into private equity, where his financial interests in the Egyptian economy, from tourism to agriculture to oil, began to grow. The fund was created prior to Gamal’s entry into political life, when he acquired 18% of EFG Hermes Private Equity.
Among the handful of Gulf companies listed is First Arabian Development and Investment Company, run by Hamza al Kholi, a prominent Saudi Arabian businessman, and Yahya Al Yahya, the chief executive director of Gulf International Bank.
The ZAD Global Direct Investments Fund is also a notable appearance on the list. This investment company, founded by Prince Mishaal Al-Saud, second child of the Prince Abdullah bin Turki bin Abdulaziz Al-Saud in Jeddah is a privately controlled investment company, organized, owned, controlled and operated as the investment vehicle for the family of Prince Mishaal for the purpose of managing the family’s investments.
Some businessmen have used clever ways to hide their investment activity. A company connected to Hussein Salem appears on the document. Clelia Assets Corporation, a Panama registered company, is linked to his name.
Salem fled Egypt in 2011 when he came under fire for tax evasion and his complicity in a corrupt gas deal.
Other controversial names on the list include Mohammed Abou El Enein, the chief executive of Cleopatra Ceramics, a major Middle East ceramics firm that has faced repeated labour strikes.
Abou El Enein, who once called himself “the noblest businessman on Earth”, was at one point under investigation for allegedly violating labour laws. Workers have staged sporadic strikes asking for improved working conditions and higher wages.
The fund is a worrying sign of how little progress Egypt has been made in defeating a tight circle of Egypt’s mafia, some of whom were subject to now forgotten corruption cases.
And now, there is evidence that some of Mubarak-era moguls may make a reappearance on Egypt’s political and business scene. Hussein Salem, who is currently exiled in Spain, has reportedly asked to make a deal with the interim government that would end any court cases against him. He has said he is presenting a new initiative to the interim government which includes funding for the unemployed in the tourism sector, as well as restoration of police stations, churches and mosques.
Hassan Heikal, who resigned from EFG Hermes earlier this year, has indicated that he will be acting in a consultancy basis to the Egyptian government. He has signalled he will offer ideas and launch new initiatives “that offer long-term solutions to Egypt’s fiscal challenges and economic development,” according to a statement he made when he resigned.
But the army has a strategy of its own. It’s interest is in preventing an examination of its own assets and business interests, which not only is likely to affect other investigations but focus on a shift away from Mubarak-era crimes toward the Muslim Brotherhood and the former president Mohammed Morsi.
So as the army continues its assault against the Muslim Brotherhood, journalists and civilians, the more these characters will disappear into the background, leaving them free to operate, uninterrupted.
Nestled in the heart of downtown Cairo is the opulent headquarters of Arab International Bank, a secretive bank that has allowed kleptocrats to funnel money out of the country for decades with barely any regulatory oversight.
The bank, established in 1974 by a treaty signed by Egypt, Libya, Qatar, Oman and the UAE, is exempt from many Egyptian laws, customs duties and taxes and is testament to the once powerful nexus between the governments of the region.
However, the bank’s links to Egypt’s old guard, as well as the Qaddafi and Assad regime, led the bank to become a centre of controversy following the revolutions of 2011.
Operating free of the regulations governing other Egyptian banks, AIB was initially established to persuade Egyptians to bring their money back to the country after the death of president Gamal Abdel Nasser in 1970.
Nasser’s socialist policies had panicked depositors who wanted to keep their money safe from nationalisation and seizure. AIB flourished as an offshore bank and played a crucial role in jump-starting the economy during its first decade of business, providing roughly 90% of the letters of credit needed by the government.
But over time, the bank’s original purpose of providing a safe haven for Egyptians wary of political turbulence faded away and what was left was a nearly unregulated bank. It became a place for powerful people to hide their wealth.
It was to be expected then, that when Egypt’s revolution began in 2011, AIB would be a target for protesters eager to purge the country of corrupt elitists.
The bank’s directors found themselves the targets of corruption accusations. Once secret accounts, inaccessible by any authority without a final court judgement, suddenly seemed likely to be revealed to the public.
And the details of those accounts would be valuable to corruption investigators. According to a source familiar with the bank, Habib El Adly, Mubarak’s infamous minister of interior, tried to move money out of the country through Arab International Bank during the 2011 uprising.
The bank’s Tahrir Square office – one of seven branches – was ransacked and burned to the ground just five days into the uprising. A few days after Mubarak resigned and handed power to the military, a Muslim Brotherhood lawyer, Mamdouh Ismail, filed a case to freeze activity at AIB until an investigation into its transactions were complete.
Within two months of the beginning of the revolution, AIB chairman Atef Ebeid was removed from his position by the military-appointed prime minister Essam Sharaf. In 2012, he was convicted on corruption charges related to “selling public assets at below value prices” and sentenced to 10 years in prison but was granted a retrial earlier this year.
For critics of the bank, Ebeid’s arrest and sentencing were proof that the secrecy and lack of oversight of the bank were exploited by members of the old regime to spirit away billions of dollars of ill-gotten money:
In 2009, two members of parliament penned an op-ed calling on Egypt to close the bank down, saying that “the bank is turning into a giant octopus that is going to swallow public money … the confidentiality the chairman imposes on bank clients, accounts and the volume of transfers makes the bank a doorway for all manner of crimes”.
But none of the claims about the bank being used by officials to move their assets out of the country have been proven by government investigators and AIB officials deny the bank was ever used to conceal the profits of using their government positions to enrich themselves.
Still, with pressure growing on the bank, the board of directors made a move to show it was transparent. In 2012, it announced the charter would be amended to allow the Central Bank of Egypt to regulate it like other banks in the country.
Nearly two years later, the bank has not yet reached a final agreement with the Central Bank on the details and implementation of that regulation.
Meanwhile, some of AIB’s top officials have come under scrutiny by activists.
The position of Mohamed AbdulJawad, the bank’s Libyan managing director and vice chairman, has triggered political wrangling in Libya – one of the five owners of the bank – because of his ties to the former regime of Colonel Muammar Qaddafi.
AbdulJawad was a key representative of Libya’s business community in negotiations with the UK and the US to remove sanctions placed on Libya after the 1988 bombing of Pan American flight 103 over the Scottish town of Lockerbie.
Adding fuel to the fire, his wife is Falak Al Assad, a cousin of Syrian President Bashar Al Assad.
A Lebanese court charged Ms Falak and two other family members last November with forging documents to gain access to money that belonged to her deceased father, Jamil Al Assad, according to an article in France’s Le Monde newspaper. The article said the family were connected to financing pro-regime militias in Syria.
While employees of the bank have come to AIB’s defence saying that the Central Bank’s oversight of the bank should be limited to prevent any damage to its competitive position, the bank has become one of the best signs that Egypt has failed to reform the leaky banking system that allowed members of the old regime to hide wealth derived from corruption and crony capitalism.
One of the key markers of a thriving economy is whether investors are committed.
For Egypt, attracting investors has remained a point of contention in the last three years – are they or are they not putting money in Egypt?
Marshall Stocker, an American venture capitalist, was among a band of businessmen drawn to Egypt’s transformation from a sleepy Arab socialist country to one that embraced the market.
The 2004 cabinet had cut the top rate of tax, launched a series of special economic zones and encouraged a rush of construction activity. This robust economic expansion plan, led by Hosni Mubarak’s son, Gamal, hit its stride in 2008, when foreign investment reached dizzying heights of $13 billion. Economic growth clocked in at a consistently high 7%.
The global business community applauded Mubarak’s rule as “bold”, “impressive” and “prudent”. On the surface, the country was a haven for investors like Stocker.
But once he had arrived in Cairo to launch his urban redevelopment real estate company, Stocker’s optimism was short-lived and he was forced to shut down his business just a year after it had hit its peak. He subsequently documented his experiences in a memoir published this year, “Don’t Stand Under A Tree When It Rains”.
Rebel Economy spoke to him about his experience as a foreign investor during the height of the revolution and why he won’t be investing Egypt again, at least for now.
A populist government panders to voters by preventing rents from rising. After several years tenants are paying much less rent than they otherwise should and this makes for lost income to the landlord and significantly lessens the value of an apartment building.
We intended to buy 12 large buildings in Cairo, and instead of buying building by building we could buy them all in a week and redevelop them.
Our team started raising money in 2009 for properties that were a particularly illiquid investment with a lock-up of 8 years. But the aftermath of the financial crisis prompted everyone to demand very, very liquid investments.
That meant that even though we solicited lawyers, doctors, colleges – all types of wealthy people, in the end the people we found to invest were all people we knew and they were all professional investors; people who managed mutual funds, hedge funds, they apparently have a better appreciation of the market liberalisation thesis in Egypt.
We were able to raise money to do that – $50 million of equity – and we started formally in 2010.
I had already advised the President of Yemen and his son on market liberalisation and the positive consequences of liberalising their economy. I always felt that direct investment in this type of liberal environment is where the real excitement is.
Egypt had both boxes checked – a nice liberalisation environment and it had rich opportunities in urban development. Egypt had the single greatest increase in economic freedom in the years leading up to 2008 and 2009, inflation had been brought under control, corporate taxes were halved to 20% and foreigners could own 100% of a business.
What you saw was direct investment increase collectively. And it was relatively easy to set up a business. The General Authority For Investment (GAFI) is a one-stop shop so the whole process of getting a company going was quite easy.
We had another dilemma: whether it is ethical to do business under an autocratic regime and what business are ethical in such environments. Ours was completely voluntary, as in sellers and tenants were free to refuse our offers. That, I thought, was the ultimate measure of ethics.
The peak came after the revolution had begun. Post-revolution there were genuine economic stresses and market prices were falling on buildings.
I negotiated inside a building on Mohammed Mahmoud Street that had its windows duct-taped shut.
The cost of the asset was dropping under tenants were under increased economic stress. So paying tenants to leave was easier to do, and redevelopment, another major component of our business, got easier to manage even though imported goods cost were going up as well as labour. The business made sense post-revolution.
There has been no economic policy post-revolution except to peg the currency. The volatility of the Egyptian foreign currency rate hit an all-time low post-revolution, and that’s absolutely not what should be happening.
In my opinion, economic policy took a backseat. Islamist president Mohammed Morsi had free-market ambitions at the micro level but didn’t show that he understood this at a macro level. So once he was in power, we had started hearing anecdotal evidence that people couldn’t move money out of the country.
GAFI told us this was not the case but we endeavoured to move a modest amount offshore. It took 7 months.
Luckily, we never had much money onshore but come August 2012, we made the decision that informal capital controls and lack of reliable economic policy meant that we would not be able to continue our business.
The business was still excellent. Profits were higher because asset prices dropped and those are the operational risks we were willing to take, but at the end of the project, if you can’t move your money out of the country, woe is the investor who makes the investment.
I have no money left in Egypt. Would I pursue a direct investment strategy that has a decreasing level of economic freedom? No, absolutely not. I wouldn’t go back.
The government has a blank cheque from a number of Gulf states but there is a credit limit and the risk is that this credit limit is reached before sound economic policy is enunciated and deployed.
And in the absence of policy, I have to believe that the money is going to run out first.
The Egyptian government visiting Gamal Abdel Nasser’s tomb also signals a certain level of respect toward his thinking but also of his socialist economic policies, which I don’t agree with. Those type of activities should not be ignored.
Stocker has published a memoir of his experience in Cairo. “Don’t Stand Under A Tree When It Rains” exposes the dilemmas of investing during the Egyptian uprising and provides advice on working in a foreign country.
Could Egypt’s economy be on the road to recovery?
Some indicators suggest this might be the case. According to Reuters:
Egyptian business activity shrank for the 13th month in a row in October but at a much slower rate, suggesting the economy may be improving after months of renewed political turmoil.
The seasonally adjusted HSBC Egypt Purchasing Managers Index [PMI – which is an indicator of the economic health of the manufacturing sector] for the non-oil private sector rose to 49.5 points in October, up from 44.7 points in September and moving closer to the 50 mark separating growth from contraction.
In other words, readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
This handy graph from Capital Economics shows what’s been happening with Egypt’s PMI:
Economists at Capital Economics say that “at face value, the rise in the Egyptian PMI would suggest that, following several months of disruption to activity caused by July’s “second revolution”, the economy is starting to recover.
But that’s really all it is, “face value”, because below the surface, Egypt’s economic problems remain a menacing backdrop to any political tensions that unfold and a reminder that no leader can succeed without acknowledging that difficult decisions need to be made.
The reliance on Gulf money has cornered Egypt into spending a lot of political capital without reaping the benefits of economic reform, economist Anthony Skinner writes in the Financial Times:
Unlike the much-maligned and ultimately rejected IMF Stand-By Arrangement, the lenient terms of Gulf aid mean that Egypt is not hamstrung by conditionality; at least not directly. A square in Luxor has already been named after King Abdullah of Saudi Arabia in recognition of his generosity. Some Egyptians part-jokingly fret that the pyramids will be next.
The trial of former Islamist president Mohammed Morsi this week was partially brought about because of Mr Morsi’s failure to address mammoth problems in the country: joblessness, rising inflation and untenable subsidies that are costing more than the country can manage.
Once the inexperienced Muslim Brotherhood was out of the way, supporters of the coup expected the caretaker government to act immediately by expediting structural reforms necessary to relieve pressure on the deficit and free up the economy.
However, the theatrics of Egyptian politics has detracted from any serious issues.
The trial of Mr Morsi has became more about the power struggle between the army and the Brotherhood rather than the charges that were brought against him. The army’s petty grudge against comedian Bassem Youssef has busied the minds of Egyptians, rather than the creeping xenophobia driven partly by populist nationalism.
And God forbid if a politician were to attempt to bring up the notion of “compromise”, because he will likely be branded a traitor for giving in to the opposition.
The Egyptian government has come up with a $3.2 billion “stimulus package” that is unrealistic, in that the plan is based on spending as much as possible while simultaneously ignoring that the country cannot have a healthy, streamlined economy unless cuts are made and taxes are overhauled and collected properly.
It has also launched “Egypt 2022”, which in economics we call a complete joke.
Other than omitting the glaring detail of how the government plans to finance this multi-billion dollar investment plan, there is no discussion of how the interim government will achieve its ambitious growth rate targets. Instead, ministers have said the plan “focuses on building a strong and disciplined economy based on social justice, characterised by diversity and openness to the outside world.”
This isn’t a Miss World contest, and we’re not asking for world peace or prosperity. Egyptians are impatient and are wondering when vague rhetoric will translate into solid, targeted actions.
News that Washington will suspend a sizeable chunk of military aid to Egypt was met with little more than a shrug from Egypt watchers and analysts who said the decision was unsurprising.
The move to trim part of the $1.3 billion in military aid to Egypt had been in question since the US issued a warning in July when the military ousted Islamist president Mohammed Morsi.
For many, it was all talk not action.
“I don’t see it as any more than a symbolic slap on the wrist,” H. A. Hellyer, an associate fellow at the Royal United Services Institute, told Global Post.
In the short run, as this Associated Press editorial argues, “the suspension of hundreds of millions of dollars in aid will have little effect on Egypt’s military and its ability to defend itself. The cutoff probably will not do much damage to most of the companies with contracts to build such weapons.”
Indeed, a report by Al Jazeera revealed that US military aid has flowed as normal to the Egyptian cities of Damietta and Alexandria since the coup began, despite warnings.
Some also said the slap on the wrist decision avoids the real debate at the heart of the aid. Jonathan Guyer of the Cairo Review explains:
If we agree that American assistance doesn’t do much, then why continue it? The basis of this gargantuan military aid package is the 1979 peace accord between Egypt and Israel; that should be the topic under discussion rather than the idea of “leverage” in the abstract.
If Washington is going to cut aid, it must carry out the policy change with a bang, not a whimper.
On the flip side, for supporters of the military-backed overthrow, the announcement inflamed tempers. Naguib Sawiris, the politician and billionaire who has never been short on opinions, started a Twitter row:
Cutting military aid to Egypt is an arrogant counterproductive action! Do not underestimate the pride of the Egyptian people!
— Naguib Sawiris (@NaguibSawiris) October 11, 2013
But a healthy dose of realism from a few Egypt commentators doused Sawiris’ outburst:
— arabist (@arabist) October 11, 2013
How is US cutting its military aid to #Egypt arrogant? It seems that expecting aid without conditions is far more arrogant.
— Matt Bradley (@MattMcBradley) October 12, 2013
For all the discussion of symbolism and how much impact the aid cuts will make on Egypt, the US undeniably has a significant amount of fire power in the Middle East. The decision to suspend some aid, in and of itself, is a big deal that will influence other major donors in their attitude toward Egypt.
Aside from Gulf aid (and I’ve been clear about why that’s not a great idea in the long-run here and here) Cairo has pretty much lost the confidence of every major donor. Washington’s announcement is a nail in the coffin for the European Union, the World Bank and the African Development Bank who have been closely monitoring developments.
Of course, the US is just one of many countries and institutions that provide military and financial assistance to Egypt, as the chart compiled by the Center for Global Development shows below. Even though, taken as a whole, European bilateral aid plus EU assistance is double that of the United States, the US is still the single largest contributor and has huge voting power at other international organisations such as the International Monetary Fund, where the country’s quota on the board is the largest. The US can stop Egypt getting the help it needs when it undoubtedly asks for it in a few years, if not earlier.
Whether Egypt likes it or not, even a symbolic decision is damaging to Cairo’s ever-withering reputation in the eyes of the international community.
The only saving grace is that those in Egypt’s government realise how detrimental the US decision is to its chances of securing other aid and make moves to speed up the election process and be rid of the the military’s undemocratic rule.
But somehow, with condemnations of the US coming fast and steady from all parts of the administration, that looks very unlikely.
Instead, as Cairo isolates itself more and more it further drives itself into the power-hungry hands of the Gulf.
It was bound to happen sooner or later.
Egypt has returned to Qatar the $2 billion the Gulf state deposited in Egypt’s central bank after negotiations to convert the money into three-year bonds failed.
Though this represents only a quarter of the total funds Qatar has lent or given to Egypt, the decision to return the money symbolises the increasingly strained ties between Cairo and Doha following the ouster of Islamist president Mohammed Morsi in July.
Qatar had been a strong supporter of the Muslim Brotherhood’s Morsi and his departure raised questions of whether Egypt would have to repay any of the total $8 billion in Qatar deposits and loans. Official reports suggest Egypt couldn’t reach a deal with Qatar and decided to repay the deposit rather than convert the $2 billion into bonds.
But in reality, perhaps Qatar was asking for a higher interest rate than Egypt was prepared to pay. Or maybe Qatar simply wanted its money back.
Either way, Egypt has been left in a vulnerable position.
Despite the $12 billion in support from Saudi Arabia, Kuwait and the United Arab Emirates that the government keeps boasting about, the breakdown of this bond deal shows that Egypt cannot rely on the Gulf to solve its problems.
The truth is that multi billion dollar support came because the Brotherhood were eradicated from the political scene, not because Gulf states are particularly bothered about seeing an economic recovery. But here’s the dilemma: the international community have openly stated they want an “inclusive political solution” that does not abandon the Islamists.
So how will Egypt reconcile the needs of international donors (such as the International Monetary Fund, African Development Bank and World Bank who can help implement essential reforms but need the Muslim Brotherhood on board), along with requirements of the Gulf states (who have provided a helpful but unsustainable safety net)?
Egypt has so far taken the easy road by refusing to make any real budget cuts and instead announced an unrealistic stimulus package that it can’t afford.
The Qatari deal breaker signals that the government is weak and its backers are dwindling. Now is the time for Egypt to reconsider how to make the most of the Gulf while the support lasts.
Among the first reactors to the Arab Spring back in January 2011 were the oil markets. The oil price, already volatile in the aftermath of the global financial crisis, became even more unstable as concerns that the oil supply would be choked off if the political problems of the Middle East affected global oil production.
Now, the world is dependant on a few Gulf countries, namely Saudi Arabia, to fill the supply gap. But should the Arab Spring countries, the majority of whom are not big oil producers, be a primary concern for unstable oil markets? Indeed, sometimes the oil market can be wrong, like it was on Egypt. Sometimes the oil market can prepare for the worst case scenario as it did on Syria.
Rebel Economy asked Justin Dargin, an energy and Middle East scholar at the University of Oxford, to break down the misconceptions we have about the oil market and its relation to Arab countries in transition.
Dargin has advised some of the largest oil companies in the world and worked in the legal department at the Organization of Petroleum Exporting Countries also advising on multilateral initiatives.
The oil market has been at one of its most unstable points since World War Two. Many have linked the risks from the countries of the Arab Spring to this tumultuous period. Is this a fair assumption?
There was a chain reaction in the global economy. After the protests began in Tunisia and spread to other MENA countries, for a period of time, investors speculated that the instability would reach the major oil producing Arab countries. The trepidation that the major Arab oil producing countries were at risk for sustained political unrest caused the global oil market to react.
But, what is problematic for the global economy is not elevated oil prices, per se, rather it is that the oil market is much more volatile because of the tenuous political situation in the MENA region. Additionally, the Arab Spring began at an already delicate time for the global economy that was still reeling from the global financial crisis.
Much of the fluctuation in the global oil market is driven by what is known as the “fear premium.”
The fear premium is basically a rise in the price of a commodity, such as oil, that is based on the expectation that a certain event will happen that would significantly impact the market in a negative way. This relates to the Arab Spring as there was a fear that several events could potentially happen. Global investors speculated that in the beginning months of the Arab Spring, there could be oil production disruption in the oil producing Gulf countries.
There was also the fear that perhaps several important sea-lanes and canals, such as the Strait of Hormuz or the Suez Canal, could be blocked. Furthermore, a bit later on during the Arab Spring, terrorism fears grew and it was thought that the regional power vacuum could encourage militant groups to launch attacks on MENA energy infrastructure.
While these fears have largely subsided (although not completely), the international price of oil still remains extremely unstable because of this uncertainty.
So when we examine global energy price instability because of political instability in the MENA region, we must realize that this is “political risk” premium that keeps oil prices artificially high.
The oil market fundamentals are relatively sound at the moment, with increased oil and natural gas production occurring in North America due to the shale oil production boom and increased production in Iraq and other areas around the world.
Nonetheless, when we assess the actual impact of the Arab Spring, the oil producing country of note that had notable disruption was Libya. And, when viewed in context, Libya supplies a minor amount of the global oil supply, while Syria, Egypt, Yemen and other Arab countries that had their own “Arab Springs” are not major oil producers of any note.
The fear premium is based on the fear that the major oil producing Arab countries of Algeria and the Gulf (and perhaps Iraq) will have their production disrupted which would significantly reduce available oil on the market.
But the perception that the oil supply could be affected, even if it is incorrect, can still make more impact than real pressures. What is the long-term impact of this on oil markets?
The oil market is uniquely vulnerable to fluctuation based on fears, whether justifiable or not. This is because most oil exports hail from regions whereby state formation occurred relatively recently and nation-state legitimacy is still being constructed.
Because many of the nation-states in the MENA region are relatively recent creations, political stability is still evolving. The primary perception in most commodity markets especially that of oil, is that the region is prone to wars, coups, terrorism and civil disturbances in ways that can definitively disrupt production of the lifeblood of the global economy.
Ultimately, the long-term impact of investor perception in the oil market, or in other words, the fear premium, is that the oil price will become increasingly divorced from the supply fundamentals thereby leading to a much more volatile market. And, as commodity markets in general become more computerized and investors are able to make split second decisions regarding investments, this problem will be exacerbated.