Category Archives: Saudi Arabia

Egypt’s Mafia Fund

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.

[caption id="attachment_2059" align="aligncenter" width="640"]Full list of investors who committed to Gamal Mubarak's fund Full list of investors who committed to Gamal Mubarak’s fund[/caption]

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.



Egypt’s Secret Swiss Bank

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.

[caption id="attachment_2054" align="aligncenter" width="400"]Atef Ebeid, of AIB, with Gulf leaders Atef Ebeid (centre) of AIB, with Gulf leaders[/caption]

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.



Egypt left vulnerable after Qatari snub

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.



The Wrap: Egypt Wheat Stocks Politicised, Libya Allies Gather To Plug Oil Gap

  • EGYPT 

Unemployment: Arab Spring Not Springing Back – NPR 

An interesting podcast from NPR on the problem of unemployment in the Arab Spring, particularly among young Arabs.

The Wall Street Journal economics reporter Sudeep Reddy and Shadi Hamid, director of research at the Brookings Doha Center, discuss why jobless rates are so high in the Arab world, particularly in Tunisia and Egypt, and why political will is so crucial to alleviating unemployment pressures.

I’ve written extensively on this topic and the reasons why Arab youth can’t (and sometimes won’t) find employment. 

Wheat stocks sufficient until February: Supply Minister – Daily News Egypt 

Another never ending conundrum for Egypt is how to keep up with demand for wheat, especially as dwindling foreign reserves and a falling currency has made imports more costly.

It’s also a topic that is highly politicised. In an attempt to put any concerns about supply to rest, Egypt’s supply minister, Mohamed Abu Shadi, has insisted that the country has enough wheat stocks to last until midway through February 2014. 

The country was forced to import 80,000 tons of wheat to make up for shortages that the interim government say were exacerbated during Mohammed Morsi’s tenure, Abu Shadi said. At the time of Morsi’s ouster, interim officials blamed the Islamist president for mismanaging wheat imports and stopping supplies.

(In reality, Egypt has a long history of addiction to bread subsidies, and one year under Morsi wasn’t going to make the situation much worse than it already was).

Yet, despite the government’s confidence, Egypt is said to still be looking to receive offers of French, Russian, Ukrainian wheatBloomberg has reported.

Ezz Steel Jumps as Egypt Mulls Punishing Turkish Steel – Bloomberg 

Did you ever expect, in the “New” Egypt, for a senior official in Mubarak’s National Democratic Party to be acquitted of financial crimes after very little investigation? Ahmed Ezz, steel tycoon and head of the Ezz Steel company, was in June acquitted after being charged with monopolising the country’s steel market.

Despite his conflict of interest, and his dodgy links to the old guard, Ezz is back to business and being protected by the interim government. Egyptian officials are considering taking actions against an increase in Turkish imports at low prices to protect local industry. By local industry, I mean Ezz Steel.

Shares in the steel company rose the most in two months and no doubt company officials are delighted.

A new gas producer in Egypt – Daily News Egypt 

At a time of uncertainty, it is reassuring to find a new company willing to enter the oil and gas industry.

RWE Dea, an international oil and gas company headquartered in Germany, will launch gas production in Egypt, Daily News Egypt reported. The project includes the development of seven gas fields in the Egyptian Nile Delta.

  • LIBYA 

Saudi, US, Iraq step in to plug Libya oil gap – Wall Street Journal 

Countries around the globe are gathering to protect the oil price at any cost. The WSJ reports:

Saudi Arabia has been pumping oil at its highest level in decades to offset a global shortfall fueled by another hot spot besides Syria: Libya, where unrest has slashed output.

A tumble in Libyan production to depths not seen since a civil war toppled the Gadhafi regime in 2011, combined with fears of a possible U.S.-led military strike against Syria, have sent oil prices sharply higher in recent weeks.

To counter this, soaring Saudi Arabian, US and Iraqi output is helping cushion the blow, OPEC has said. Libya, which holds Africa’s largest oil reserves, has suffered from strikes by armed guards, shutting down most of the country’s terminals.

Output fell to a post-revolution low of 150,000 barrels a day last week.

But while Saudi Arabia is pumping the highest level of oil into the market for decades to offset a global shortfall, the Kingdom is consuming more of its own oil every year and a reliance on costly energy subsidies is making it’s budget more vulnerable.

Still, that niggling worry is not enough for Saudi officials to reduce output, so for now Libya will see its allies rally around it.

Security update – Libya Business news 

For those interested in the minutiae of Libya’s security situation, Libya Business News has a useful weekly update and map of incidents highlighting risk:

[caption id="attachment_1970" align="aligncenter" width="593"]Libya Business News Libya Business News[/caption]


Making the Most of Gulf Aid to Egypt

[caption id="attachment_1953" align="aligncenter" width="450"]Egypt's interim President Adly Mansour meets with UAE's National Security Adviser Sheikh Hazza bin Zayed Al Nahyan: REUTERS Egypt’s interim President Adly Mansour meets with UAE’s National Security Adviser Sheikh Hazza bin Zayed Al Nahyan: REUTERS[/caption]

We may not like it, but Egypt desperately needs Gulf money.

So why not change the way the Gulf lends money to Egypt to make it count. It won’t be just about wasting away cash to address a symptom without resolving the underlying problem.  

Indeed, without Gulf aid, the government would have struggled to pay for vital imports and would have fallen far behind on its supply of fuel, prompting nationwide riots and unrest.  The pound would have depreciated rapidly in the absence of sufficient central bank deposits and would have been worth closer to LE7.5 or LE8 to a dollar instead of LE6.89.

Egypt had no-one else to turn to.

International donors, including the likes of the International Monetary Fund, the World Bank and the African Development Fund, had too many strings attached for far less money to make it worth while for Egypt. These organisations also promised a whole lot of interference (or as they call it “technical expertise) into economic policy-making – another unpopular prospect for the foreign-wary Egyptians.

Meanwhile the Gulf was a perfect lender to Egypt. It has acted more like a generous Uncle, pouring money (and petroleum products) into Egypt’s coffers whenever needed and with few questions asked. As long as the Muslim Brotherhood are out, the Saudis are in. 

But beyond throwing money at the problem, the Gulf has done little in the way of long-term restructuring in Egypt. They’re not interested in reforms and overhauling the tax system, but wielding control in the most populous Arab country and leverage over the Brotherhood.

Though the Gulf can afford to keep playing this game, Egypt can’t.

The government has been given too much free rein with more than $12 billion in cash and oil. None of that has gone towards supporting the budget deficit, or towards reforms that will benefit the lives of millions of Egyptians.

Adly Mansour’s government, or more likely the government that follows after elections, should consider making the most of connections with the Gulf by striking deals in infrastructure and energy.

Rather than just taking money to plug holes that will reappear in a few months time, Egypt would do well to get the same money siphoned off into long-term investment projects.

There are many avenues for joint ventures: Egypt’s factories, the bread and butter of the industrial sector, are shutting down because of difficulty securing loans in the credit market.

Low-income residential projects to house thousands of Egyptians living on-top of one another in Cairo has stalled as contractors struggle to find the funds to keep working.

Labour-intensive infrastructure projects, on roads, railways, water and sewage treatment plants, are in desperate need of investment.

Egypt’s interim government boasted about launching a $3.2 billion “economic stimulus plan” yet very little has been said about reinforcing ties with the Gulf, which is surely the easiest way to implement such a “stimulus plan”. The only mention of Gulf investment is a possible agreement with the United Arab Emirates to finance medical projects and 10 wheat silos.

But that is not enough. There should be a full-scale collaboration with Gulf countries, not only to benefit Egypt, but to show the international community that the money is working hard for the nation.



The Wrap

After several months hiatus (and readers saying they are having sleepless nights without it) the daily wrap is back!

I’ll be linking to a handful of the most important economic stories from the transitioning countries of the Arab world, namely Egypt, Syria and Libya, and to a lesser extent Tunisia, Yemen, Jordan and Morocco. (The Gulf is there in the background too, but only because of its connections to these countries).

1) Energy groups rethink commitment to Egypt Financial Times

This story has become evergreen for Egypt and it seems like every couple of months a new story crops up to remind us that debts to oil companies are not going to disappear anytime soon.

The story repeats much of what has already been reported, mentioning companies owed millions of dollars including BG group, ENI and the Dana Gas. However the premise of the story may be unfounded. Although oil companies may be acting cautiously at the moment, and holding off any expansion plans, it’s very unlikely that these companies will pull out of Egypt altogether. Not only would this prove costly for these companies to pull out their equipment and human resources, but those firms would miss out on costs they are making at the moment. Because, as the FT story says:

Egypt’s oil and gasfields continued to produce as if nothing had happened.

2) Egyptian cabinet approves $3.2 billion economic stimulus plan Reuters

Reading this story made my blood boil.

The government has already introduced some stimulus measures including lowering interest rates (and more controversially printing money, though that’s more rumour than fact). But increasing spending at a time when the budget is reeling from over-expenditure on wasteful subsidies (for both energy and food) masks a difficult truth: the government doesn’t actually want to make any cuts, or raise taxes to keep its own reputation in tact and avoid any public backlash. Essentially, it’s a cowardly move that will mostly benefit the current interim government who has so far been completely ineffective after the killings of hundreds of Egyptians.

And that perception that $12 billion of Gulf money will save Egypt is very naive. That money is not being targeted at the budget. At best it may be used for some investments, but really it will be used to keep the pound afloat and the country’s imports flowing.

Capital Economics, the London-based consultancy elaborates. This is their bottom line:

Egypt’s newly-announced stimulus package stands a chance of boosting the beleaguered economy in the near-term. But with the package being funded by Gulf aid, over the longer-term, it could actually take the country further away from making much-needed reforms to improve the business environment. 

3) Energy stocks rise over SyriaReuters

I will be writing on the economic impacts of US intervention in Syria later but for now, there are some gems hidden in this stock market story. Capital markets have been responding wildly to this. Gulf stock markets suffered record losses. Though it’s not clear that any escalation of the Syrian civil war would have a pronounced effect on Gulf economies, these same countries have been supporting Syrian rebels for some time.

As a result, investor rushed to the safest commodity around (well it was safe until a few months ago when the gold price plunged…). Gold prices rose to three and a half month highs above $1,430 per ounce as Syria tensions raised its appeal as a safe-haven asset.

 



Why Egypt’s Pound Isn’t Strengthening

Take a look at this chart, which the Central Bank has been proudly parading this month:

[caption id="attachment_1917" align="aligncenter" width="552"]Bloomberg Bloomberg[/caption]

It shows how the pound’s official price, controlled by the central bank, has been appreciating slowly since the overthrow of Islamist president Mohammed Morsi. 

If we were to take this graph at face value, we might conclude that the pound has strengthened as the interim government (and military) took over, and billions of dollars worth of Gulf aid is helping the country’s currency stabilise.

However, traders on the black market tell a very different story, and say the Central Bank is ensuring the pound strengthens just to give the impression that the economy is stable and improving despite the turmoil.

Here, where the pound is traded illegally, the domestic currency has actually weakened to LE7.20 (from LE7.10 a few days earlier, according to Reuters) reflecting Egypt’s volatile economic and political situation.

The pound actually fell as low as around LE8 per dollar at one point earlier this year on the black market, prompting the central bank to turn to a few different measures to reduce pressure on the currency and revive the economy:

  • It put the currency up for sale a few times in December 2012 to prevent a currency crisis and let the pound lose more than 11% of its value on the official market
  • It cut interest rates for the first time since 2009 to revive economic growth
  • The government accepted $12 billion of Gulf aid from Saudi Arabia, Kuwait and Abu Dhabi. $5 billion of that has already arrived.

But none of that is working. This graph puts the currency’s performance in context, showing how the pound has rapidly fallen in value this year:

currency3

And as the pound depreciates further, the more foreign currency reserves are drained and the less the central bank can support the official rate for the currency. This is why the country is spending foreign currency at a rate of about $1.5 billion a month.

Add to that, the few foreign investors left are moving to withdrawals but currency controls are making it difficult to convert Egyptian pounds to dollars. Earlier this month, Emad Mostaque, a strategist at Noah Capital Markets in London told me around half a billion dollars worth of investment is trying to leave Egypt at the moment. 

So the picture isn’t as rosy as the interim government may want you to think.

In fact, the volatility we see on Egypt’s currency cycle will be another black mark to add to the nation’s problematic currency history, marked by the Central Bank’s repeated efforts to keep the pound’s value elevated, sometimes at the expense of the country’s precious foreign reserves.

The people at Dcode, an Egyptian business consultancy, put together a comprehensive graph detailing just how volatile the Egyptian pound has fared in the last three decades:

[caption id="attachment_1907" align="aligncenter" width="650"]Dcode Dcode[/caption]

As long as the central bank and government refuse to accept that massive political turmoil and violence on the streets alarmed investors and traders, the pound will continue to fall, foreign reserves will bleed faster and the Gulf will have even more power over Cairo as it comes to the rescue once more with billions of cash. 



Is Egypt’s Fuel Crisis Over?

No.

That’s the short answer. Here’s the long one:

I’m afraid Egypt still has a long way to go before we never experience a power cut or experience gas shortages again.

The country’s fuel shortages seemed to have miraculously disappeared, just as Islamist president, Mohammed Morsi was overthrown. There were no gas lines and suddenly no electricity cuts:

“We went to sleep one night, woke up the next day, and the crisis was gone,” Ahmed Nabawi, a gas station manager told the New York Times.

Supporters of the interim government predictably seized on this saying the “improvements in recent days were a reflection of Mr. Morsi’s incompetence, not a conspiracy,” according to the NYT story.  While the former president is guilty of a lackadaisical approach to the economy, there is little truth in this.  It looks more like severe wishful thinking shared by Morsi’s opponents after his ouster. 

First of all, there have in fact been power cuts and long queues for gas since Morsi’s ouster. I experienced a power cut myself yesterday and I’m lucky enough to live in the quite pleasant island of Zamalek.  Journalists who travelled to the Upper Egypt city of Beni Seuf in recent days also witnessed extended queues for gas at petrol stations there.

The second point, a technical but very important one, is that much of the gas used in cars is actually refined locally. It is not imported from other countries, so any explanation that has attributed the queues to fill up gas tanks to the wider economic downturn is inaccurate. Egypt imports gas and other types of energy products for factories, businesses and power stations, not for cars.

Thirdly, for those conspiracy theorists out there, it is very likely that the Gulf money to Egypt was part of quite a substantial reward arrangement.  Therefore, the removal of Morsi would have seen the $12 billion (which includes a hefty supply of badly needed oil products) from Saudi Arabia, the United Arab Emirates and Kuwait funnelled through a few days earlier than it had been announced, lessening pressure on demand for energy locally.

Fourthly, the simplest answer is usually the right one.

Did anyone consider the fact that as millions of Egyptians took to the streets, very few people were actually at home or at work using electricity or filling up their cars? It is rational to expect that with business pretty much at a standstill on the anniversary of Mohammed Morsi’s presidency, the demand on domestic energy was actually quite low, meaning we were in a comfortable position for the days leading up and after his ouster.  Electricity-generating power stations are by and large run with natural gas, and with demand much lower for that week, it’s likely the capacity would not have been overcome as it has in the past.

There are other “theories” out there that suggest the Army used its own funds to pay for fuel, and “Saved Egypt”.  Groups blamed each other.

Some liberals suggested that the Muslim Brotherhood was behind the fuel shortage as an attempt to demobilise the masses and prevent large demonstrations from forming. But others who served under Morsi said there was a conspiracy to create a crisis from the opposition:

“This was preparing for the coup,” said Naser el-Farash, who served as the spokesman for the Ministry of Supply and Internal Trade under Mr. Morsi. “Different circles in the state, from the storage facilities to the cars that transport petrol products to the gas stations, all participated in creating the crisis.”

Forget these hypotheses that are not proved and will probably remain that way.

What is clear is that the country’s addiction to subsidies is still very much a problem, and that this eclipses every single theory on how shortages may or may not have started or ended. Of course, Mohammed Morsi made many mistakes, as detailed here.

But Egypt, has for a long time, bought energy products at international prices, and sold these locally at a severely subsidised price, costing the nation billions of dollars (in fact energy subsidies swallow up to a quarter, and increasingly more, of the budget – more than what is spent on health and education combined).

Not only is this an expensive way of distributing subsidies, but the system is not targeted so effectively everyone gets cheap fuel – and the rich naturally consume more of it, leaving the poor still in need.  Add to that, Egypt has actually begun consuming more energy than it is producing, exacerbating the problem. This problem may have been inherited by Morsi, but it is not his fault.

The painful truth is that when a new government convenes, it will be up against the same debilitating problems that Morsi’s administration was having difficulties with. Nasser created subsidies, but neither Sadat nor Mubarak or Morsi would touch them.

Who will dare to be the fact that is associated with these reforms? 

Instead of focusing our energy on these pointless theories that are fabricated by those who are greedy for power, the interim government should focus on how to relieve pressure building up as a result of  this system soon, before Egypt experiences another bout of shortages which will no doubt be blamed on one unsuspecting group.



Patriotic Egyptians Donate to National Fund

For Egypt’s Central Bank, financial donors are always welcome.

Whether it’s Qatar, Saudi Arabia or even controversial international lenders like the International Monetary Fund, if the donation looks and feels like US dollars, Egypt is happy to receive it. Especially at a time when the country is desperate to fund dollar-denominated fuel and wheat imports, but limited foreign currency reserves make it too expensive.

So last night on Egypt’s CBC channel, when TV host Khairy Ramadan called on all Egyptians – the business community, celebrities, Egyptian expatriates and ordinary citizens – to donate to a national fund to help Egypt out of its economic malaise, many Egyptians were happy to take part.

Anyone can deposit money into the “Egypt Fund” using bank account number 306306 (all Egyptian banks are accepting donations).

Within minutes, hundreds of Egyptians were calling to donate money to the cause.  Even children donated pocket money.

But one person in particular stole the show.  Mohammed Hawas, chief executive of Sahara Group, an engineering company declared that he would donate a whopping $5 billion.  (By the way, he was a presidential candidate in 2005, so undoubtedly, a political element is at play here…).

The national fund, trending on Twitter with the hashtag #EgyptFund, has already stirred debate.

For some, it highlighted the patriotic duty of Egyptians at a time of instability.  Some said if the donations continue at the same pace, Egypt would have no need to sign a loan from any other country or organisation, including the IMF. Some even went as far to say that Egypt could eventually lend money to the US and not the other way round.

Other viewers were more sceptical.  “I’ll believe it when I see the money with my own eyes,” said one unconvinced Tweep.  “So I should give up my money for the economy even if it doesn’t work?” asked another.

For all the discussion for and against the account, Egyptians should be reminded that this is a tried and tested method. Even under Mohammed Morsi, a “Renaissance Account” was opened encouraging the same donations, for the same cause.

It didn’t work that time (or we would have heard about it) and it is unlikely to work this time.

The account might be a crowd-pleaser rallying positive momentum for Egypt’s economy, but if the country is really serious about improving the economic situation, the interim government needs to move quickly on the formation of a cabinet so that the government can function properly and real reforms can be pushed through.



Egypt’s Biggest Oil Debts

Egypt’s state oil company, the Egyptian General Petroleum Corporation, is in big trouble. 

It has racked up billions of dollars of debt in the last decade with some estimating its dues to banks and oil companies is as high as $20 billion.

The magnitude of EGPC’s debts is such that it would be rare to find an oil company in Egypt which is not owed money.  The growing debt pile highlights the government’s struggle to meet its rising energy bills while trying to keep subsidised prices to avoid public unrest.

This Reuters story describes the problem in a nutshell:

Egypt has been delaying payments to firms producing oil and gas on its territory as it has struggled with dwindling currency reserves, rising food bills and sliding tourism revenues since the 2011 revolution that overthrew Hosni Mubarak.

Most oil firms hope to recoup the debts in full, but they acknowledge it could take years. While they are still planning to invest in new projects in Egypt that will help it avoid an energy meltdown, the debt situation remains a challenge.

The government’s delay in paying its debts to oil and gas producers could hold back investment in the sector and potentially endanger Egypt’s energy security.

But exactly how many companies have been impacted and what kind of money are we really talking about?

The following spreadsheet, acquired by Rebel Economy from an investment bank which has major interests in Egypt’s energy, lists the debts owed to no less than 42 companies for oil and gas exploration.

The spreadsheet shows that while a number of small companies are owed money, several large energy companies have achieved special repayment deals with the government.

Of the companies listed, Italy’s ENI agreed to allow EGPC to delay on a $100 million payment, the UK’s BP agreed to defer $600 million, and BG Group also of the UK, $589.8 million.

The spreadsheet ends January 2012, but it one of the clearest barometers of the scale of EGPC’s debt to oil companies that has been made public. Even this document is seen as portraying a conservative total debt figure of only $3.44 billion when actual debts to oil firms are estimated to be at least $5 billion.


If you want to look at this in more detail, click here.

Yet this is just the tip of the iceberg.

EGPC’s debts to banks, to countries that are lending the country fuel at sometimes preferential rates, and even debts to other ministries (the finance ministry has injected billions of dollars to the electricity ministry) set a frightening precedent for what Egypt is facing today.

With Egypt’s inefficient and costly energy subsidy system at the core, this is yet another example of why the country must take long-term steps to reform the system or be forever in debt to others.