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Category Archives: Islamic Finance

Why Egypt Can’t Rely On Sukuk

A law that better regulates sukuk issuance has been mooted for several years, but the move to enforce a clear law became a priority after the revolution, especially considering the economic climate is increasingly being shaped by Islamic political parties.

So finally the “troubled passage for a bill” ends, Reuters reports and Egypt’s President Mohamed Morsi has approved a law allowing the state to issue Islamic bonds, or sukuk.  Here’s the full bill in Arabic.

There are high hopes for sukuk to shore up Egypt’s flagging finances.  Officials have thrown out figures to the public that signal these instruments could raise as much as $15 billion from domestic and foreign investors.

Well, I’m sorry to burst your bubble Mr President, but that’s not happening. Read More



Egypt, the IMF and Europe

In a new policy paper for the European Council on Foreign Relations – Egypt, the IMF, and European Economic Assistance – I  argue that while structural reform is important to deal with Egypt’s deep rooted economic problems, it would be short sighted for the EU and key member states not to act now.  Here’s a blog post on the paper too.

Part of the inspiration for this paper came from numerous meetings with EU diplomats who have, up till now, held back most of loans and grants to Egypt because of a lack of political stability and consensus.

However, the more I spoke to Egyptian players, the more I saw this as a Catch 22 situation. 

Egypt needs cash to prevent instability in the face of unemployment and economic collapse, but it can’t get the cash without signing up to reforms that would themselves cause more short term instability.

Europe must commit some money to grassroots training now to avoid this Catch 22 destroying the consolidation of democracy in Egypt.

My key arguments are as follows:

  • The EU should invest in young people, with the Egyptian private sector still struggling to find qualified employees despite high unemployment levels. Donors should target vocational training programmes for young Egyptians.
  • The EU is already due to sign two programmes that put millions of dollars into infrastructure projects and technical skills training. These, plus World Bank funding for small and medium enterprises, should serve as a model for smaller, targeted aid programmes.
  • Europe should still stand by the IMF’s comprehensive reform programme, aimed at fixing long-term structural problems in Egypt’s economy.

 



SPECIAL REPORT: After Arab Spring, Islamists Test Religion In Economics

With the rise of political Islam across North Africa in the wake of the Arab Spring uprisings of 2011, Islamic finance is being touted as the solution to decades of unemployment and economic inequality.

“We’ve tried socialism, we’ve tried capitalism, now we’re trying Islam,” cried supporters of Mohammed Morsi, when he was elected as Egypt’s first Islamist president last June. In Libya and Tunisia, new political movements have pledged to use Islamic principles to right their wayward economies.

But some critics – including advocates for the greater use of Islamic finance – believe that a sudden and rigid adherence to Islamic law, known as Sharia, could dramatically slow down economic recoveries across the region at a time when governments are already struggling to establish stability.

With rising unemployment, growing deficits and continued protests, anything less than a quick-turnaround for post-Arab Spring economies could be disastrous, economists warn.

“Governments have to prioritise getting economies back in shape before introducing Islamic finance,” said Douglas Johnson, chief executive of Codexa, a New York-based investment bank that creates Sharia-compliant financial products.

Egypt, where the Muslim Brotherhood is positioning itself as the most powerful political group in the post-Mubarak era, has become an important test for whether the marriage of Sharia with a 21st-century country can ameliorate financial and social hardship.

Economist, Global Sukuk
Economist: Global Sukuk, and by country

The Islamist government has focused on passing new laws to allow the issuance of sukuk, or Islamic bonds, and pledged to centralise zakat, a mandatory charitable giving from Muslims, to better target poverty.

While a shift to Islamic finance could bring an economic boost by giving countries access to a huge pool of Islamic investment funds from the oil-producing countries of the Persian Gulf, such as Saudi Arabia, Qatar and the United Arab Emirates, some say Sharia is out of sync with modern economics and cannot work in today’s world without extensive updating.

“What passes as Islamic finance is anything but interest-free,” said Timur Kuran, a professor of economics and political science at Duke University. Mr Kuran is the author of “The Long Divergence,” a book that argues that Arab countries have failed to keep up with the economies of the West because of the rigidity of Islamic law around business and finance.

Sharia, which is “out of date” and has not played an important role for almost two centuries, only serves to add an “Islamic veneer [which] will not improve an economy in any measurable way,” Mr Kuran said.

Egypt’s long-winded negotiations with the International Monetary Fund for a $4.8 billion loan have shown how an uncompromising adherence to Sharia can slow down much-needed injections of funds. Clerics and Islamists have dithered over the loan, in part, because the loan comes with a 1.1 per cent interest rate. Sharia prohibits usury.

After an initial reluctance, the Muslim Brotherhood’s Freedom and Justice Party recently endorsed the IMF loan and called it Sharia-friendly. They describe the interest rate as “an administrative fee”.  But the IMF has distanced itself from any claim that the loan is Sharia-compliant, saying instead that the terms of the loan are “favourable”.

Without the funds, Egypt has had to allow the currency to gradually devalue and risk higher inflation, especially for food, provoking a backlash from protesters who believe the government has relegated demands for social justice.

The careful deliberations of the Brotherhood and its political arm reflect the group’s more pragmatic views of religious doctrine, but also what they see as a tremendous opportunity.  About 65 per cent of Egypt’s mostly Muslim population do not have bank accounts. By increasing access to Islamic finance, they believe Egypt could gain billions of dollars in new deposits.

“Islamic Finance is a realistic option especially with demand coming from those who by nature prefer ‘Islamic’ solutions regardless of the sector and domain,” said Ashraf Serry, one of the Muslim Brotherhood’s top economists.

North Africa 

Governments across North Africa are also shifting to Islamic finance as a way of reducing deficits.

African Development Bank: North African Shariah compliancy
African Development Bank

The Tunisian government is trying to diversify and increase its sources of revenues by tapping into Islamic finance and issuing sukuk.

Tunisia’s newly elected Islamist movement Ennahda, which has led the government after the overthrow of president Zine al-Abidine Ben Ali last year, said the government would ensure that Islamic banks were able to compete on a level playing field with conventional banks and wants Tunisia to become a regional center for Islamic finance.

Critics in Tunisia believe the strategy is more about playing to Ennahda’s fervent constituency than wise economic policy. Tunisia’s economy has long been a hotspot for foreign investors, especially from Europe, because of its Western-influenced political, economic and legal system.

Since protests broke out in 2011, Tunisia’s unemployment rate has risen to 18 per cent from 13 percent, with about 750,000 people out of work. The worsening situation has fuelled arguments that what the country needs is stability, not Sharia-compliant financial products.

African Development Bank:
African Development Bank

For many Arabs living in the Middle East, however, Islamic finance is a welcome relief.

“Libya is 100% Muslim so there is a willingness to adopt islamic banking solutions and this will definitely have a significant impact on retail and personal banking in Libya,” said Alaa El Huni, an investment banker based in Tripoli, Libya.

Libya’s government has indicated it will further enshrine Sharia in laws and approved an Islamic banking law in May to stimulate its private sector following a civil war that ousted Muammar Gaddafi.

Here, in a country devastated by lengthy battles between rebels and Gaddafi’s supporters, the opportunity for restructuring the Libyan economy is larger.

But Mr El Huni’s warned that moving from one extreme to another will negate any efforts.

“A country run wholly on islamic finance would to some extent alienate itself or at least create barriers to an effective relationship with the rest of the world.”



Guest Post: Morsi’s First Six Months – an Appraisal

MohammedFadelTHIS POST HAS BEEN UPDATED WITH PART II – A SUMMARY OF MORSI’S TOP CHALLENGES

Guest post by Professor Mohammad H. Fadel, an Egyptian-American-Canadian lawyer and legal academic who practiced corporate finance, banking, and corporate and securities law at the New York law firm of Sullivan & Cromwell LLP. He blogs here and tweets here

As Egypt’s President Mohammed Morsi completes his seventh month in office, it is looking ever more doubtful that Egypt can build on the accomplishments of the January 25 Revolution; the risk of relapse into authoritarian rule increases with the passage of each day in which Egypt’s civilian political leadership prove themselves incapable of addressing the country’s seemingly endless problems.

For many opposed to Morsi, all the post-revolutionary problems facing Egypt can be laid at his doorstep, or at the doorstep of the Muslim Brotherhood, the organization to which he belongs.

But the truth is a little harder to swallow.

Egyptians have inherited from the Mubarak years a legacy of neglect and maladministration on an epic scale. It will take a generation of hard work to recover.

From this perspective, Morsi’s seven months have been a relative success, and his willingness to negotiate a loan with the International Monetary Fund, rather than being held against him and the Muslim Brotherhood as proof of a Machiavellian approach to politics where all principle can be sacrificed in the pursuit of power, should be taken as evidence of a pragmatic willingness to give reality greater weight than ideology.

From my perspective, economic reform must be the first priority because in the absence of a growing economy, it will be impossible to solve any of the problems facing Egypt, much less achieve freedom, dignity and social justice. I think all Egyptian political movements can learn from the pragmatism that the Muslim Brotherhood and Morsi have been willing to show with respect to the IMF.

Morsi certainly deserves no stars, but for Egypt’s democratic transition, that may also be his virtue. Some Egyptians may pine for a charismatic and brilliant popular leader at this phase in its history who will take bold and decisive action to solve the nation’s problems, but such a figure would have heightened the risk of authoritiarian relapse.

If Morsi’s weakness and indeciviseness are his greatest vices, his greatest virtue is that he has not acted in a fashion consistent with the stereotype of “one-man, one-vote, one time” that has been attributed to Islamists and indeed, the Middle East generally: Egypt is on the cusp of instituting a viable, even if imperfect, system of electoral politics, which has the possibility, given the magic of compounding over time, to begin to solve Egypt’s structural economic problems.

Until Egypt’s structural problems are on the road toward a solution, however, it is fantasy to be believe that Egypt will get anything more than minimalist democracy. Egypt’s opposition must rise to the occasion, desist from actions that inflame the situation, and always act to reinforce the nascent democratic institutions that are available, always with the hope of deepening and broadening them in the future.

Instead of continuing to fight yesterday’s battle, the opposition needs to organize effective political parties and formulate clear political programs that address Egypt’s practical problems. Uniting around an anti-Muslim Brotherhood agenda is a recipe for civil war, not for solving Egypt’s problems. So, the ultimate judgment on the competence of Morsi and his government must be made not only in light of the historical legacy of virtual social collapse inherited from Mubarak, but also on the relative competence of his adversaries, and here the saying that “the one-eyed jack is king in the land of the blind,” is perhaps only too apt.

PART II 

Assessing the performance of Morsi and his government over the last seven months is crucial in thinking about what kind of policies any Egyptian government at this stage could reasonably be expected to pursue.  To do this, we need to step back in time, and first assess the problems that any post-Revolution government will have to face.  In short order, these include the following:

1.       A deeply-divided population: despite the beauty of the pictures from Tahrir Square during the 2012 Revolution, Egyptian society is deeply-divided along lines of class, religion, ideology, and region.  The various rounds of voting, beginning with the March 19, 2011 referendum have confirmed these sharp differences, and the free-wheeling political competition among Egypt’s various political entrepreneurs have, if anything, only exacerbated these differences in the meanwhile.  Given this reality, the idea that Egyptians could produce a constitution based on a deep social consensus was nothing more than a “Tahrir Square moment”-induced fantasy.

Accordingly, the constitution essentially reflects only those relatively few points on which there was deep agreement: the end of absolutist presidential rule; the end of unlimited emergency rule; the end of arbitrary police powers; and the end of a closed-political system by instituting regular elections that are genuinely contested.  As for the extent of personal rights or social rights, these are, for good or ill, objects of deep contention in Egypt and at the present moment, it is inconceivable that there could be any resolution of these questions which would represent a social consensus.  The constitution therefore delegates these questions to democratic politics.  Disappointing, but certainly not an unreasonable strategy, and certainly not consistent with either an Iranian or Saudi approach.  Passage of any kind of constitution in this circumstance would have proven extremely difficult for any Egyptian politician, and if this constitution is annulled as many in the opposition are demanding, it’s hard to see that a new constitutional assembly would do a better job in preparing a consensual document.  In short, any post-revolutionary government will have to navigate a public that is fractured, and until the material background conditions improve significantly, there is little hope to expect healing in the body politic.

2.       An economy on the verge of collapse: The current crisis in the Egyptian economy, exemplified in the recent panic about the persistent decline in the Egyptian pound, reflects a generation of failed economic policies.  From 1980 to 2000, for example, the average rate at which capital per worker increased in Egypt was a paltry 1.14%.  While I have not come across post-2000 data, there is no reason to believe that the rate of capital investment has substantially improved.  Egyptian investments as a percentage of GDP in 2011, for example, was only 15%, while in Indonesia it was 32% for the same period.  The systematic over-consumption and under-investment in the country’s human and physical capital has debilitated the ability of the country to be competitive in the international market and, as the recent train wreck and apartment collapse in Alexandria demonstrate, are literally endangering the lives of thousands of Egyptians on a daily basis.

We should not forget the problem of youth unemployment, which is effectively in the range of 75%: According to a recently published report on youth unemployment in the Arab world that included statistics from Egypt, the youth participation rate in the workforce is the lowest in the world, standing at 35%, and despite that extremely low participation rate, the Arab world still has the highest youth unemployment rate at 25%.

There are no easy answers to Egypt’s structural economic crisis, and any plausible set of answers will all involve pain and sacrifice on a people who are already struggling.  The best we can do is ensure that it does not call on further sacrifices on those Egyptians who are struggling to survive. In this respect, the government’s determination to enter into an agreement with the IMF is something to be commended, not to be dismissed based on visceral hatred of anything that smacks of Mubarak’s policies, especially in light of the absence of credible alternatives from the opposition.  (I have previously defended the proposed IMF loan elsewhere, here and here, so there is no need to rehearse in details its advantages for Egypt, particularly in light of this blog’s own excellent analysis of the loan here and here).

3.       An ineffective and bloated bureaucracy: The Egyptian civil service is, at once, incompetent, corrupt, and bloated.  Even the best strategy of reform will require a competent civil service to implement that policy.  The professionalism of the current bureaucracy, however, has been systematically undermined since the Free Officers’ Revolution, when they made the catastrophic decision to use the lure of government employment as a means to win the loyalty of the educated urban class rather than as an instrument of rational governance.  There are too many state employees who do nothing, and not enough to do what is needed.  Nor is it clear that the bureaucracy has enough skills to implement the kinds of policies that Egypt obviously needs.  Take the desire to implement subsidies targeted specifically to the poorest 40% of Egyptians. Execution of such a policy requires a fairly sophisticated bureaucracy which is capable of identifying those individuals, making sure they can get the appropriate electronic subsidy card, and then establishing some mechanism so that merchants can process payments through these subsidy cards.  In the alternative, the state could provide direct cash subsidies to these 40%, but that would require that the poor have bank accounts, etc.  In short, even the best-formulated and most rational policies require complicated logistical steps for implementation, and it is not at all clear that the Egyptian bureaucracy can be relied upon, even if it was willing to go along with new governmental policies, to execute competently these new policies.

4.       The Rule of Law: While the excesses of the police in the Mubarak era are well-known, it is not by any means clear how a post-revolutionary Egyptian government will be able to reform the police over the short-term when the police itself was as much the target of the Revolution as Mubarak himself.  In short, how does one radically transform an institution which itself is required to maintain law and order over the short and medium terms? But, the police are not the only problem.  Egypt’s courts are notoriously slow, due largely to unreasonably high case loads placed on judges.  The inability of the average Egyptian to rely on the judicial system to enforce his rights in a timely fashion means that, for the most part, the legal system of rights and duties is ineffective, and the people must rely on informal means, sometimes involving violence, to enforce their rights.  Add to this the problem of transitional justice, and the need to hold accountable members of the Mubarak regime and their allies within the security services, and one is left wondering how Egypt’s judiciary, even if it were the most honest judiciary in the world, could reasonably be expected to uphold the law effectively for all Egyptians?   This week’s tragic outcome in Port Said illustrates the difficulty.  Again, any post-Revolutionary government will have inherited a broken judiciary system that in its present condition is incapable, even if it is willing, to provide effective justice to Egyptians, whether in political cases or even disputes involving private property.



Egypt’s Muslim Brothers And The Right Debt

At a press conference yesterday, Egypt’s bewildered minister of finance, El Morsi El Sayed Hegazy, struggled to compose himself in front of reporters.

The newcomer forgot his predecessor’s name and called the former finance minister Mumtaz Al Sagh instead of Mumtaz Al Saeed.

He also looked worriedly at his Freedom and Justice Party colleagues for reassurance and had to be handed documents detailing the few basic figures on Qatar’s loans to Egypt before he spoke.

The outcome of Hegazy’s confused and anaemic performance was a claim that the new law for Islamic bonds, or Sukuk, is expected to generate $10 billion for the Egyptian government.

A significant sum considering the law for regulating sukuk issuance in Egypt has been talked about for at least two years.

The move to implement one now has gathered momentum after the strong emergence of the Muslim Brotherhood following Egypt’s uprising in 2011, but progress has been slow.

Just last week,  Egypt’s cabinet finally approved a draft law to allow sovereign Islamic bonds as the government searches for new ways to finance an unsustainable budget deficit.

However, for the Muslim Brothers to push for debt, Islamic or not, is a concern for the country’s main religious authority, Al-Azhar.

As Maggie Hyde, at Egypt Independent wrote:

Adopting the Islamic banking law in Egypt has drawn significant scrutiny from civil society and religious figures — an indication of the struggle over Sharia-based laws in the future.  One of the main concerns is that putting the Islamic label on this sort of financing is merely cosmetic, a way to lure investors into a less than attractive market.

Members of Al-Azhar’s Islamic Research Academy rejected the Finance Ministry-backed bill, saying it “violates Islamic Sharia and endangers the state’s sovereignty”: 

The bill would allow foreigners to own sukuk, as well as shares in local factories and businesses, Al Azhar academy member and former Grand Mufti Nasr Farid Wasel told Al-Masry Al-Youm.
“It is like we are selling our properties to foreigners,” he said.

It is a further test of how Egypt’s Islamist government will reconcile religious beliefs with a modern economic framework. The Morsi administration has already faced this dilemma with the IMF loan, as they sought to convince conservatives that the contentious loan was Sharia-compliant.  The IMF distanced itself from this notion, saying instead that the interest rate on the loan is very favourable compared to other forms of financing.

But amid all the confusion during this messy political transition, a push toward tapping Islamic bonds for financing signals that the Brotherhood are promoting the very element of finance that Islamists usually reject – debt.

For the Islamists, this is the right kind of debt. However, they are mistaken on how much it will cost them.

In fact, in Egypt’s case, it will be cheaper to opt for conventional financing rather than sukuk.  To give one example, Egypt will borrow from the International Monetary Fund at about half the rate Qatar paid for sukuk in July.

Perhaps the nervous new finance minister should concentrate on practicing his public speaking before proposing Islamic finance as a credible way out of Egypt’s economic crisis.



Guest Post: Is Islam the solution?

Guest post by Isabel Esterman, a Cairo-based journalist. She blogs here

“If religion makes you more honest, why is it that the most corrupt countries are also the most religious?” asks a writer at Epiphenom, a blog about the science of religion and non-belief.

A few weeks ago, Rebel Economy posted a map illustrating how countries around the world fared in Transparency International’s annual Corruption Perceptions Index.

Corruption Perceptions Index 2012
Corruption Perceptions Index 2012

The graphic becomes even more interesting when paired with a world map that shows how religious different countries are:

Gallup, 2006

What is clear is that when looking at the two maps side by side, countries with the most pious citizens are not the least corrupt; in fact, when you remove communist or formerly communist countries, which have their own complex histories of corruption and state intervention in religion, it’s very nearly the opposite.

More religious countries appear to be more corrupt. (More rigorous examinations also bear out this conclusion, as do studies that look at legislation of religion as well as just personal practice –Heather Marquette at the University of Birmingham gives a good summary of the field.)

This does not mean that religiosity causes corruption – many studies have tried to establish a causal link, with frustratingly ambiguous and contradictory conclusions.

However, it does mean that religious movements or political parties that claim the evils of corruption can be eradicated by making society more religious are engaging in wishful thinking or outright deception.

To put it more bluntly, Islam is not the solution.

(Nor, for that matter, is any other religion. Check out the corruption scores of devoutly Catholic nations.)

Claims that a government ruled by people who fear god and pray every day will automatically be more honest than one run by secularists or atheists fly in the face of empirical evidence.

Australia, whose prime minister is an atheist, is consistently among Transparency International’s highest scorers, as are profoundly non-religious Scandinavian countries; highly religious societies, like Afghanistan and Somalia are at the bottom.

It’s not random chance that societies like Australia or the Scandinavian countries, which combine with low religiosity and low levels of corruption, also have some of the world’s highest standards of living.

Both corruption and religiosity are strongly related to low scores on measures of wellbeing like per capita income and the Human Development Index. Again, proving causation is nearly impossible. But it’s safe to say that countries that are wealthy, have little public corruption, and provide their citizens with high-quality social services like healthcare and education are unlikely to be highly religious.

This presents an interesting conundrum for politicians like the Freedom and Justice Party, who promise voters both good governance and more religion in public and private life. There’s scant evidence that the two goals are compatible.

Realistically speaking, the most likely explanation for the Muslim Brotherhood’s dismal economic record lies in a combination of inexperience and incompetence on the part of the new regime, the deeply entrenched corrupt and corporatist legacy of the old regime, and global economic malaise.  Secular governments can of course be corrupt, as those who lived under Mubarak or Putin are well aware.

Nonetheless, the relationship between religiosity and corruption does suggest a fun conspiracy theory to explain why the government seems to consistently make the worst possible choices for the economy: Perhaps the Ikhwan and their Salafist fellow travelers are well aware that a society that is poor, corrupt, uneducated, and unhealthy is also more likely to embrace religious fundamentalism, and this is all part of a phenomenally complex and masterfully subtle master plan.



Breakfast Wrap: Will Egypt’s New Finance Minister Be Open for Debate?

Is a public finance professor who specialises in Islamic finance really the CV that jumps out at you for Egypt’s critical post of finance minister?

Not really.

But to President Mohammed Morsi, the unknown Cairo University professor El Morsi El Sayed Hegazy was the right choice to replace Mumtaz El Saeed, an advocate of the $4.8 billion International Monetary Fund loan. El Saeed had been one of a few ministers to retain his position since his appointment to Kamal Ganzouri’s interim government in December 2011.

Hegazy, whose political experience appears to have only just started, may find it difficult to reconcile his Islamic finance specialism with the modern economic framework needed to push Egypt out of its economic lull.

In the book The Long Divergence: How Islamic Law Held Back the Middle East, author Timur Kuran argues that the real cause of underdevelopment and economic stagnation in the Middle East is the Sharia, or Islamic law.  The author argues that while other countries adapted their philosophies and approach to economy according to modern times, the Middle East was very late in adopting key institutions of modern economy. 

The law has not evolved and adjusted to the new world of business and finance. It’s not an impassioned critique of Islamic law but more of a reflection of how Sharia essentially lacks innovation and does not fit in to the 21st Century.

However, there is a catch to the idea as Ziauddun Sardar, who reviewed the book, writes in The Independent:

It is based on the assumption that Western financial institutions, and self-serving corporations, are the best possible model for development. Given the havoc that these institutions have caused in recent times, and the fact that injustice and obscene wealth is integral to their make-up, I think it is an assumption too far.

He adds, though “Kuran’s thesis is contentious; it does provide us with an incentive to reformulate Islamic law. It is an excellent starting-point for a debate long overdue.” 

The question(s) I have is: Will Mr Hegazy be open to debate or will his thought process be driven by his boss (Morsi and the Muslim Brotherhood)?

The Morsi administration’s biggest failing has been to lead the Islamists rather than the country. There is no space for such polarization in a modern economic framework. Islamic finance is not going to save Egypt’s economy but can play a part in redefining the country’s aims – a focus on the middle and lower class rather than the rich, and a method of relieving the millions who are suspicious of conventional banks and their high interest rates.

If Egypt’s new finance minister lasts long enough to make any critical decisions, let’s hope he can think past religion to the nation.



Egypt At A Crossroads: 2013

A NEW EGYPT 

Once upon a time, Mohammed Morsi’s election as President of Egypt invoked nationwide pride, celebration and relief that finally stability might be on its way. Many may not have voted for him, but at least they could rest easy that the military generals were out of power and the democratic process was underway.

“I have no rights, only responsibilities,” Morsi said to cheering crowds chanting, “God is great”.

“If I do not deliver, do not obey me.”

Half a year later and his words have come back to haunt him. The economy has deteriorated so much that even the Central Bank has warned of a critically low level of foreign reserves. People are panicking and rushing to trade their pounds for dollars.

To the detriment of the population, today’s Egypt is not dissimilar to the country ruled under former president Hosni Mubarak.  The Morsi administration, like Mubarak’s regime, is struggling to win legitimacy from the people and contradictions on the path ahead have confused the international community.

Mubarak began his presidency in much the same way as Morsi. He won the support of the nation by releasing prominent political prisoners and removing some restrictions on the media.

He also took the step of inviting the country’s most prominent economists to a conference to discuss the deteriorating condition of the Egyptian economy and displayed genuine will for economic reform. (Morsi is soon planning a “National Dialogue” on the economy).

Sadat had left behind a heavy burden of high levels of foreign debt and high inflation. Egypt’s economic structure was askew.

And in Mubarak, who appeared less domineering and egotistical than his predecessor, there was hope in the hearts of Egyptians that change was coming. But it was clear within a year of his inauguration that it was not meant to be. The emergency law was renewed and reforms slowed to a glacial pace.

“Sure enough”, wrote Galal Amin in the introduction of Egypt in the Era of Hosni Mubarak, 1981-2011 “the sky began to darken and little by little we began to despair of any real political or economic change occurring”.

The honeymoon was over and Egypt seemed forever destined to be a “Soft state”, or:

“A state that passes laws but does not enforce them. When the state is weak, taxes are not collected, people are left to break the law, they lose respect for the police, traffic laws are flouted, and security is lax,” wrote Amin.

Arabist John Waterbury saw the soft state as increasingly ingrained into the fabric of Egypt. In The “Soft State” and the Open Door, he wrote:

“Egypt, whether under Nasser or Sadat, has been a soft state. Neither leader felt it was necessary or desirable to sweat significant segments of the citizenry for the sustained savings that might have made relatively autonomous growth possible.”

This sad situation has repeated itself with Mubarak, and now it seems with Morsi.

Egypt’s only hope now is for the president to begin to reform the creaking bureaucracy and ease an unsustainable subsidy regime, while attracting investment and creating new jobs to lessen the blow. It won’t be easy, but it is the burden of a president to do what must be done even if it hurts the reputation of his political party.

That should be the theme of 2013. But the lack of a clear economic vision is worrying, as Nadine Marroushi, a Cairo-based reporter for Bloomberg, and I will explore through themes that cover the long-winded negotiations with the International Monetary Fund, the costly addiction to energy subsidies and the rise of the labour movement.

Happy New Year.
Farah
Editor, Rebel Economy

ECONOMIC GROWTH FORECASTS

Egypt’s government has said it will focus on boosting flagging economic growth to 3.5% this financial year and 4.5% in 2013/2014.

That is a scaled down version of a previous forecast for growth of between 4% to 4.5% for 2012/2013.

The economy, riven with political and economic strife, has struggled to grow as the uprising that toppled Hosni Mubarak in February 2011 chased away tourists and investors.

Still, the economy grew by an annual 2.6% in the third quarter of 2012, President Mohamed Morsi said in a televised speech this week.

In the year that ended June 30, gross domestic product grew by a lacklustre 2.2%, up from 1.8% in the 2010/11 financial year, according to statistics published by the Finance Ministry.

This compares with annual growth rates of 5% and higher before the regime of Hosni Mubarak was overthrown in 2011.

Rebel Economy surveyed seven economists and two financial analysts that on average said the economy would be hard pressed to grow above 2% in the next financial year.

Most have pencilled in growth of between 2% and 2.5% in the next financial year.  There are anomalies however in forecasts, with one chief economist at a Cairo-based investment firm saying the nation could experience “significant” growth of 6% or 7% next year if the IMF loan is signed. The agreement would unlock at least $14 billion of financing in other loan packages and would provide the stimulus needed for growth, he said.

All those interviewed agreed that the IMF loan is the cheapest and most effective catalyst for an economic revival. The relatively easy 1.1% interest attached is far more  favourable than expensive government bonds and bills the state has sold to try to narrow the deficit.  These have been sold at yields as high as 16%. Now, the interest payments on Egyptian government bond yields are increasing at a faster rate than spending on subsidies and wages.  Economists say these payments now make up around 15% of government spending.

The heavy burden on banks to buy these securities has also diverted cash that would have been spent in the private sector on narrowing the budget deficit.

Due to the significance of the IMF loan for an economic recovery, Rebel Economy has laid out three potential scenarios based on the negotiations giving some indication of what could happen in the months to come and the impact on elements of the economy including the currency.

lagardeJoke1
THREE SCENARIOS BASED ON IMF LOAN NEGOTIATIONS 

SCENARIO 1: IMF loan is passed in early 2013 (Jan or Feb)

The most favourable of all scenarios would see the IMF agreement officially signed in January.  Under this scenario, the one month delay would have little impact on Egypt’s economic framework presented to the IMF which includes a package of measures to cut wasteful spending and earn revenue. In a reassuring sign, Egypt’s prime minister Hisham Qandil latest statements indicate that negotiations will resume in January.  Qandil told reporters there won’t be any fundamental changes in their economic plan with the IMF.

This would mean that Egypt would immediately have to go ahead with a package of reforms it has proposed to appease the IMF, including tax hikes and subsidy reforms before or as soon as the loan agreement was signed.

These unpopular economic reforms will be difficult to implement two months before the parliamentary elections when the Muslim Brotherhood hopes for significant support. Reforms will be particularly hard to implement because of the president’s slim mandate.  Morsi’s decision to rush ahead with a vote on the constitution despite calls from the opposition to delay it left him with a polarised country.

However, if the government implements these reforms in the right way – by communicating the “Hows” and “Whys” – the loan will go some way to relieving pressure on the currency and foreign reserves. The steady depreciation of the pound will be stemmed and the rush to swap pounds to dollars will also ease off as the public sees a light at the end of the tunnel.

Economists at Beltone have forecast an additional drop in reserves to about $14 billion in December, or the equivalent of 2.8 months of imports, well below the “safe” level.

Therefore, an injection of almost $5 billion would instantly provide a buffer to the Central Bank and the budget. More importantly, the IMF loan will act as a catalyst for the release of other loans that are contingent on this agreement being signed. Economists say that this additional support amounts to about $14.5 billion. Finally, a final agreement on the loan would end almost two years of negotiations and would draw a line under the uncertainty that has stopped foreign investors from returning to Egypt.  The loan, more symbolic than financially helpful, would signal a new start for the nation.

SCENARIO 2: Loan delayed again, forecast for resuming negotiations

Given that increasing taxes on goods and services is a prerequisite for signing the final agreements on the IMF loan, it is a possibility that the government will attempt to further delay unpopular measures until after the parliamentary elections, which are due around February.

This could initially put pressure on the pound and budget deficit.

With tourism and foreign direct investment down, two of Egypt’s main sources of foreign currency, its ability to continue propping up the pound through foreign reserves will come under further pressure.

The central bank already appears to be letting the pound slip gradually. It not only hit a near eight-year low on December 26, but its value has been declining faster than usual in December. The pound has been stable and traded at around 6 pounds to the dollar for the first half of the year, only to start falling after Egypt signed a preliminary IMF loan agreement in mid-November.

Money to support the budget deficit from the EU and African Development Bank will also continue to be delayed so long as Egypt delays the IMF loan, and investor confidence will continue to be low.

This paves the way for Egypt to receive financial support from other actors, such as the Gulf states or the army — as it has done over the last two years — at least until parliamentary elections.

Though, with the politically charged atmosphere created by the constitution, the reinstatement of Parliament is no guarantee that the government will be any more likely to pass its planned austerity measures.

SCENARIO 3: Loan delayed with no forecast for resuming negotiations

Under this scenario, Egypt’s economy is most fragile.  Domestic and foreign investors (individual and institutional – i.e. large companies) are likely to exit the debt markets and swap their pounds for dollars.  The government will lose support from international donors who have waited for the IMF loan to pass, and much-need aid will pass by Egypt.

The country’s currency devaluation may be “disorderly”, according to this research note from Capital Economics:

“Failure to secure help from the IMF would make a disorderly devaluation more likely. In this scenario, the pound could overshoot, falling by perhaps 50% or more against the US$. The costs to the economy would be severe.

This is likely to lead to a spike in inflation, sharp hikes in interest rates, a potential banking crisis and rapid fall in asset prices.”

Higher inflation and a cheaper pound will be hardest for the poorest, who are already struggling in their daily lives.  Food will become expensive and meagre salaries will buy less.  A “Revolution of the Hungry” could lead to the revival of riots, political instability and public discontent with the Morsi administration.

Investor confidence will also be shaken in the short-term by the uncertainty created regarding Egypt’s economic plan and the government’s ability to get things done. A repeat of January 2011 could see companies scaling back or sitting out the crisis, and foreign direct investment could likely fizzle out.

The government will most likely try to press ahead with austerity measures, even without the prospect of signing an IMF loan agreement to get the budget under control, though pressure from political opposition forces will make it difficult to enact these reforms.

As Reuters reports, by “fast-tracking the constitution to a referendum that the opposition said was divisive, he [Morsi] may have squandered any chance of building a consensus on tax rises and spending cuts that are essential to rein in a crushing budget deficit.”

It is likely that with no agenda for resuming negotiations with the IMF, Egypt would have to go back to the drawing board and alter its macro-economic plan to accommodate the changing fiscal situation.  Government officials say this could happen even when Egypt resumes negotiations with the IMF in January.

KEY CHALLENGES
Aside from the task of securing the IMF loan, Egypt faces a multitude of other significant challenges. Rebel Economy broke these down into a few major themes: the labour movement, tax reform, energy subsidies and the rule of law.

The Labour Movement

Egypt has experienced an increase in labour action since the outbreak of the revolution. Protests have forced factories and companies to shut down, which has shaken investor confidence and highlighted the need for more effective laws that govern employer-employee relations.

“There have been more strikes than ever before,” says Joel Benin, an academic who has written extensively on Egypt’s labour movement. There were 1,400 strikes and forms of collection action in 2011 alone, compared with no more than 800 in any previous decade, Benin estimated.

The main demand has been for the implementation of a minimum wage (ranging between 1,200 and 1,500 Egyptian pounds), better working conditions and recognition of Egypt’s newly formed independent unions.

A draft labour law, introduced by Ahmed el-Borai, the former labour minister, allowed unions to organise for the first time beyond the parameters of the government-controlled Egyptian Trade Union Federation. But there have been delays in fully enforcing the law, leaving workers in legal limbo, the Financial Times reported.

In 2013 the Shura Council, which now has legislative powers, or the lower house of Parliament, if re-elected as planned, could re-visit this.

Strikes have been increasingly effective. In three of the most recent strikes, at DP World’s Ain Sokhna port (a private company),  Eastern Tobacco and Arab Polvara (both public), demands were eventually either fully or partially met.

The key challenge for employers, especially in the private sector, will be accepting that even if they spend a bit more on workers by implementing a minimum wage, the labour force in Egypt is still much cheaper than its regional competitors in Turkey, Morocco and Tunisia, and certainly Europe.

The government will need to introduce a labour law that satisfies workers’, unions’ and employers’ needs. It shouldn’t try to dominate the labour union movement and should avoid criminalising protests or responding with any heavy-handed measures, which would be counter-productive in the unrest it ensues.

Energy Subsidies

After years of debate, cutting one of Egypt’s biggest bills has become essential to balancing the nation’s financial books.

The government spends about 20% of its budget on keeping fuel prices down for the general public in a subsidy system that benefits the richest rather than the neediest.  Now, Egypt is one of the worst offenders for energy subsidies in the world on par with Russia and China.  And because its domestic consumption is rapidly growing, Egypt winds up using its share of production locally rather than earning much-needed revenue from exports. That means it buys expensive fuel from abroad and sells it at a discounted price domestically.

The country has shifted from being a net exporter to a net importer of oil over the past decade.  This month Egypt’s petroleum ministry admitted it had also switched to a net importer of gas from a net exporter.  The consequences of such an unsustainable practice are immense.

On a domestic level, fuel is so cheap that almost everyone uses their car to get around and congestion and pollution are normal.  In addition, the government spends more on energy subsidies that health and education combined so the social impact is enormous.  More worrying still is the rising (external) debt pile. The nation sells its fuel at a much cheaper price than it buys it so inevitably debts to international and domestic energy companies and banks grow.

Bankers that have interests in energy have told Rebel Economy repeatedly that energy subsidies are at the crux of Egypt’s wider problems. Reserves have been depleted not only to support the pound but to keep importing petroleum products to keep up with demand.  The Central Bank released a statement this week saying it had spent $14 billion since the beginning of 2011 on imports of petroleum products and foodstuffs.  Undoubtedly, this was to plug a shortage in the market. 

So what can be done? What is clear is that everyone now regards energy subsidies as a drain on the budget and politicians acknowledge that reforms have to be made. But not much has come of the countless promises to enforce reforms including a coupon system that would better regulate subsidies and fuel price hikes that would instil a healthy aversion to buying gallons of fuel.  So far, the Morsi administration has shown it is too weak to implement difficult reforms for fear of riots and a backlash.  With two months before the parliamentary elections, it appears that Morsi must choose between temporary popularity by retaining the status quo of these plentiful fuel subsidies, or steer the nation out of its crisis and show a strong hand.

Tax Reform

The fact that Morsi couldn’t implement a hike in sales tax on alcohol in a country that is mostly dry shows what an uphill struggle his government faces in carrying out tax reform.

The government recently announced a package of tax hikes on goods and services, ranging from cigarettes and mobile phone calls to electricity bills and real estate. Within hours, the reforms were delayed amid calls for “societal dialogue” by members of the opposition and media.  The delay was also seen as an attempt to win the popular vote at a politically sensitive time when Egyptians were set to vote on the constitution.

The move had more severe impacts, however. Egypt had to postpone the signing of the IMF agreement partly because tax reforms are a crucial part of the economic reform programme presented to the Fund. Without these tax hikes, it is unlikely the IMF would have agreed to disburse $4.8 billion.

Raising taxes is necessary to shore up finances and plug a budget deficit that reached 11% of GDP in the fiscal year that ended June 2012, and is projected to exceed 10% by June 2013.

But Morsi and his aides have yet to gain broad support on the matter with members of the opposition, a task that is necessary but hard to imagine given their poor track record in consensus building with non-Islamists.

Other tax measures, such as reforming the 20% income tax on wages whether rich or poor, as well as addressing corporation tax and broadening the tax base, are to be taken up by the next Parliament.

morsijoke2

Rule of Law

There is an ongoing concern about respect for the rule of law in Egypt, which is critical to address before returning to stability.  For example, the people blocking Tahrir Square believe the government is illegitimate so they illegally block traffic. Police, too, haven’t won back respect from the people, so they are unable to enforce the law sometimes.

As for the new constitution, though it spells out the new parameters for the rule of law, many people believe those parameters are incorrect. Max Rodenbeck spelled out the key flaws in this Economist report. The new constitution could give “Morsi’s party, the Muslim Brotherhood, a grip on power not unlike that enjoyed by Mubarak”, he writes.

The somewhat unpopular new constitution and a government still trying to win legitimacy from people means there is a rule of law crisis in Egypt.  As Haitham Tabei writes in EgyptSource:

“Solutions must be found to the [rule of law] crisis, outside the current framework of religious institutions and inept security forces, and must depend instead on a state of citizenship, which guarantees the safety and protection of all its citizens regardless of religion.”

MAIN DRIVERS OF GROWTH

These challenges, though significant, are not impossible. Egypt’s geostrategic position on the crossroads of Europe and Africa, its large population and favourable tax conditions are all drivers of growth and mean the nation will continue to attract companies that want to tap the retail market, quickly. European banks, hit by the Eurozone crisis have had to offload assets in Egypt but these assets have caught the attention of Gulf banks, despite the political instability.

Société Générale has agreed to sell its majority stake in NSGB, its Egyptian subsidiary, to Qatar National Bank for $2 billion. BNP Paribas seeks bids for the sale of its Egyptian retail arm, which is expected to generate between $400 million and $500 million. Last year, Standard Chartered came close to acquiring the Egyptian assets of Greece’s Piraeus Bank.

Other merger and acquisition activity in the retail market is likely to continue in 2013.  We are already seeing signs of this happening with Dubai’s Majid Al Futtaim 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.

Enacting a law that would allow issuance of Islamic bonds, or sukuk, is also seen as one driver for investment growth next year, economists say. A sukuk law has been mooted for several years but only taken more seriously after the revolution when Islamist parties have lobbied harder for Islamic financing. Globally, $109 billion worth of sukuk were issued in the first nine months of 2012, up 69% from a year earlier, with the rise driven primarily by Malaysia and Gulf governments, according to research by Zawya.  Egypt is yet to tap into this lucrative market.

Above all, economists say another driver of economic growth will be resolving investment disputes post-revolution. Egypt’s biggest companies, especially those in the property sector, have faced legal challenges because of Mubarak-era contracts. More recently contracts in some of the industrial sectors, including goldminer Centamin have been under the microscope.  Some of these cases are rushed through with little valid evidence and are eventually overturned. A more accurate and thorough approach to investment cases will pave the way for a better corporate structure.

A BROADER VIEW OF ECONOMIC GROWTH 

The great mistake of the Mubarak regime was not seeing its role as broader than just increasing growth. Their policies led to a revived economy, but the profits only stayed with a small elite and did not make an impact on the vast majority.

Economic policy is not just about making some numbers go up and others go down. That is why the definitions are so important. Gamal Mubarak’s cabinet of technocrats lacked the vision to redefine the aspirations of the government.

And that is one area where the Brotherhood’s Renaissance Project team are right. Khaled AlQazzaz, an advisor to Morsi on “integrated development”, explained during a conference earlier this year that the government was planning to change the metrics it uses to evaluate successes and failures. That means they are proposing a new way of looking at how the government improves the lives of Egyptians.

It will no longer just be about the GDP rate and number of teachers to pupils. It will be about whether the lives of Egyptians is improving or not, analyzed through a new set of performance indicators. This way all policies can be directed toward the right solution. The answer isn’t always in more teachers, but changing the curriculum. It’s not about number of hospitals, but about the health of Egyptians.

In New York City, the police department radically changed they way they approached crime by targeting the crime rate itself rather than police officers’ response time to a scene.

New York just reported its lowest number of murders for decades.

The government should go even further and establish an independent ministry to be in charge of the portfolio, so Egyptians know that the numbers aren’t being fudged to make the president look good.

It should also give the opposition movement something to think about. Are their policies just better technical tricks to balance the books or do they have a vision for Egypt that is broader than “neoliberalism without corruption”? This should be the basis of all political platforms: how will you grow the economy and how will you measure the impacts? The answer to those twin questions would give people a good idea of why they should or shouldn’t vote for them.

CONCLUSION

With little of its own money to spend, Egypt will be forced in 2013 to implement belt-tightening measures on stomachs that are already hungry.

The cries for “bread, freedom and social justice” continue to echo in protests that have not ceased since the 2011 uprising.

But austerity measures are difficult enough to implement in a country with political stability let alone one that is as polarised as Egypt. Strict reforms will undoubtedly stoke further unrest in the year ahead.

It does not help that the government consistently fails to consult the public about its plans in a transparent manner, or when it puts out decisions only to backtrack hours later. Transparency is crucial.

State institutions also contradict themselves in the information they put out, and state media is biased, all of which creates a climate of uncertainty and mistrust in government.

It is now or never for Morsi.

He has two paths to choose from: retaining the status quo or leading the country out of the crisis with a strong hand, clear communication and a promise to soften the blow for the most vulnerable. He has the power to implement reforms that will begin to change the lives of millions of people who are suffering from decades of neglect.

Can Morsi make the first, difficult steps of change not seen in the country for decades? Will he be strong and bold enough to lead the country out of its economic, social and political malaise? 2013 will be the test.



Breakfast Wrap: Egypt’s Constitution and Why The Wheel Won’t Turn

Early results in Egypt’s referendum on a draft constitution has put supporters with a narrow lead with an unofficial tally placing backers of the charter with 56.5% of the vote.

Though voting will continue in other parts of Egypt next week, Saturday’s vote is important because it represents Cairo and Alexandria, the nation’s two biggest cities.  The areas represent the stronghold of the opposition to the constitution.

Conflicting results from the Muslim Brotherhood and the main opposition umbrella group, the National Salvation Front, showed both claimed victory. However in past votes, the Brotherhood’s preliminary numbers have closely matched final results, will be announced after the December 22 second round vote.

Yesterday’s ballots show the referendum is likely to be passed and the challenge now rests with the country’s president Mohammed Morsi, who has already undermined confidence in the democratic transition and economy.  He campaigned with billboards that read: With the Constitution, the wheel will turn”But reality paints a different picture.

The most punishing challenges are ahead for Morsi:

  • Morsi’s mandate will be slim and he will find himself in an untenable position at times where tough austerity measures will be harder to enforce without serious backlash. His credibility is already wavering with a large part of Egypt because of his decision to hold a referendum without the support of the opposition.
  • Morsi is weaker than he has ever been. Every day that passes, the president makes a move that is met with resounding protest and opposition. His back-flip over tax reforms and the International Monetary Fund loan have only offered proof to his critics that he is not presidential material.  This is not necessarily because of the nature of the reforms but how he chooses to deliver the message, that is, almost always in a void with little communication and explanation to the public.
  • In the streets, chants of “Get out Khairat al Shater” can be heard. It is reminiscent of the protests last year against Mubarak’s gang of corrupt businessmen including Ahmed Ezz. There are mounting concerns over Morsi’s clique, especially Al Shater, a Brotherhood businessman who appears to have a great influence over the country, but who remains a mystery to most. Transparency is not Al Shater’s strong point.
  • Finally, the constitution itself has raised questions over how the Egyptian economy will run, including improved labour rights and whether these are addressed in the constitution and the dominant interpretation of Islamic Sharia and how this could influence banking and finance.  Yet more important than the constitution’s many flaws “is the context in which it is being proposed,” this Economist article argues:

When Mr Morsi captured the presidency in June by a slim margin, he signalled magnanimity by formally quitting the Muslim Brotherhood and appointing a largely technocratic government. Egyptians cheered in August when he removed the domineering generals who had shakily guided the post-revolutionary transition.

But Mr Morsi has proven equally erratic and domineering. The Brotherhood, meanwhile, has infiltrated state institutions. It has tried to shape the message of the state-owned press, arranged for its members to distribute government-subsidised goods, and quietly scaled back family-planning programmes.

 



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.

I.e:

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? 

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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.