Category Archives: Turkey

The Wrap

1) Egypt and TurkeyBloomberg 

It’s amazing how fickle Egypt’s government can be when it drops an old friend.

Egypt’s new government has made it clear it is not prepared to cooperate with Turkey, an ally and donor of the Muslim Brotherhood. Tensions have grown between the two countries since the army toppled Islamist president Mohammed Morsi and Turkey is suffering for it, with exports dropping as much as 30% since July 3, the day of the coup.

The Federation of the Egyptian Chambers of Commerce this week announced they will suspend all official trade relations with the Turkey after Turkish Prime Minister Recep Tayyip Erdogan described Morsi’s ouster as an “unacceptable military coup”.

But with the volume of trade between the two countries estimated at about $5 billion, excluding tourism and joint investment projects, Egypt will also end up paying a price for its bad diplomacy. 

2) With Brotherhood out, old order shapes Egypt’s future – Reuters 

Not so much an economic story, but one that alludes to the growing influence of Egypt’s “old guard”, symbolically represented by the release of Hosni Mubarak.

The evidence is clear: the army has marshalled support from Egyptians as the country becomes exhausted by two and a half years of turmoil.   Investigations against the January 25 killings and politically corrupt individuals during the Mubarak era have been put on hold. Censorship is back, with propaganda infiltrating most TV channels and even some state-run newspapers calling the January 25 revolution a “setback”.

This story makes very clear that Egypt has turned a worrying corner in the quest for democracy and therefore equality, which is really what the revolution was all about. 

3) Apache – Wall Street Journal 

The oil and gas company, Apache has agreed to sell 33% of its Egypt business to China’s Sinopec Group. It will continue to be an operator on the projects.

Though this story may, on first reading, look like Egypt’s oil sector is vulnerable to asset sales because of increasing debt to oil companies and mismanagement on the part of the Egyptian government, it’s not that simple.

The operations are located in the Western Desert, far from any political unrest that would impact exploration. In fact, this transaction reflects more of Apache’s goal to use the proceeds to reduce debt, buy back shares and fund the company’s capital spending.

What it does highlight is the value of Egypt’s oil and gas sector, which will always be attractive to companies, even despite such political risk. 

4) Egyptian government temporarily halts IMF negotiations – Egypt Independent 

This story is misleading for a number of reasons. Egypt didn’t halt IMF negotiations, rather the IMF stopped communicating with Egypt partly because of the way the Brotherhood have been almost banished from not just the political sphere but from daily life in Egypt. Most Brotherhood members are in hiding now.

The story also refers to the Gulf as a kind of saviour that will tackle the deficit, but none of the $12 billion will be used to cut the deficit. It will be used to keep the pound afloat and imports flowing. In other words, it’s a running tap that is wasting cash that could be used more shrewdly.

What about making a deal with Saudi Arabia to invest in projects in Egypt? Wouldn’t that be more helpful than throwing billions of dollars into the Central Bank to support a currency that many consider is overvalued? 

5) Libya oil – Economist 

One of the biggest issues standing in the way of Libya’s economic success is the government’s control over key sectors, especially oil. Now a port that allows the trade of Libyan oil has been shut off and its closure is representative of the power the state wields over the energy sector.

Basically the state believes that a large amount of oil is being “smuggled” out of Egypt. But the party responsible for the potential sale, the Petroleum Facilities Guard, say it is a valid transaction.

The stand-off is part of a bigger political agenda between various factions in Libya, but as this Economist article concludes, if the state-owned “National Oil Company cannot keep its legal monopoly on oil exports it will be taken as yet another sign of the increasing level of political risk in Libya”. 

5) Economic Challenges and Opportunities in Post-Qaddafi Libya

This report, from the Atlantic Council’s Rafik Hariri Center, evaluates the Libyan economy and progress since popular uprisings in February 2011 and the eventual ouster of the Muammar Qaddafi regime.

On the surface, it appears Libya’s economy is back to pre-revolution levels with oil production and GDP at comfortable levels. But this report sets out how the government has failed to come up with a single economic plan. 

In this useful read, three main priorities are laid out for Libya’s government including diversifying the economy away from oil, reducing youth unemployment and modernising the financial system. 





Egypt’s Economy: Before And After

How did Egypt’s economy survive before the revolution considering it was a ticking time bomb?

Why have energy subsidies, which swallow a fifth of the budget, only become a financial burden now?

What has changed?

The following hair-raising chart from London-based economist Ziad Daoud explains all:

[caption id="attachment_1692" align="aligncenter" width="640"]Ziad Daoud Ziad Daoud[/caption]

Egypt’s economy has gone through a three-stage transformation, Daoud explains:

Phase 1: Before the Revolution 

Foreign investments either through directly investing in infrastructure projects or buying factories, or financial investments into the Egyptian stock market or government bonds.  These investments, up till the revolution that began in early 2011, were sufficient to cover the current account deficit (i.e., when a country’s total imports is greater than the country’s total exports, which can be dangerous if not kept in check).

As a result, the Central Bank of Egypt’s (CBE) reserves remained largely untouched and reached a peak of $36 billion at the end of 2010.

Phase 2: The Revolution 

Three things changed after the Revolution.

1) First, despite the rise in remittances, the current account deficit grew larger mainly due to the fall in tourism.

2) Second, direct investments halted to near zero.

3) Third, foreign capital flows into the Egyptian stock and bond markets quickly reversed course and flowed out of the country (the light blue bar in the chart).

The changes put pressure on the pound but the currency was supported by the CBE’s intervention in the foreign exchange market using its international reserves. This meant reserves fell below the minimum safety level—estimated by the CBE to be around $15 billion—in the second half of 2012.

It also meant a change of strategy – the current account deficit and financial account deficit were now being financed by the CBE’s reserves.

Phase 3: After the Revolution

With international reserves all but exhausted, the government—loathed to accept a currency depreciation—started to look for alternative sources of external funding. It was during this phase that it reached a preliminary agreement with the International Monetary Fund (IMF) in November 2012 only to backtrack on the deal.

Instead, the government managed to finance the current account deficit with loans from Turkey, Saudi Arabia, Libya and especially Qatar. Most of these loans are in the form of deposits at the CBE, some of which can already be seen as the dark-grey bar in the chart and more are likely to show up when the CBE publishes the balance of payments figures for the latest quarter. Indeed, thanks to these loans the CBE announced last week that its foreign currency reserves had increased to $16 billion at the end of May.

Phase Four? 

Egypt is once again on the precipice of signing the IMF loan, saying a deal would be agreed by the end of this month.  This could mark the Fourth Phase of Egypt’s economic transition, but as the government’s top advisor Essam El Haddad, complains to the Financial Times that it’s all the IMF’s fault, maybe we shouldn’t hold our breath…

While the economic impact of the revolution was not one that could easily be managed, the decisions to steer the country in the right direction could have been different.

Because, what does the above tell you?

It shows that every single cabinet elected after the fall of Hosni Mubarak, every prime minister and even the Supreme Council of the Armed Forces which coveted its role as a military caretaker government before President Morsi was elected in June 2012, have turned Egypt from an economy suffering because of its unstructured, inefficient welfare system, to an economy that is surviving on welfare – loans from others. 

Isn’t it ironic, don’t you think?

Egypt’s Islamist Groupies

There are few Egypt’s president can rely on more in these economic hard times than his band of Islamist brothers.

Key financial supporters from Islamist-led governments have come through with cash injections at times of extreme economic hardship, when Mohammed Morsi faced a spike in inflation and subsequent social unrest.

Egypt’s Islamist groupies, including Qatar, Turkey, Saudi Arabia and Libya have all together offered the country $10 billion, partly to boost the Central Bank’s coffers, partly to help with energy imports.





$5 billion

The Gulf state has doubled financial aid to the Egyptian government with an additional $2.5 billion, on top of a previous $2.5 billion in deposits. While the Qatari finance minister has dampened any prospects of further aid in the short-term, this should not be mistaken for the Gulf state backing away from assistance to Egypt. Qatar has put its money where its mouth is, and to shift its focus away from Cairo now after pouring billions of dollars into the country would undermine the Gulf state’s investment decision.


$2 billion

Turkey has deposited $1 billion of the $2 billion aid package it pledged last September. It is aimed at helping Egypt finance infrastructure projects and increase its dwindling foreign currency reserves.

Saudi Arabia

$1 billion

Last year, the Kingdom deposited $1 billion into Egypt’s central bank at a time when Egypt’s reserves plunged 60% from pre-revolution levels. The deposit included $500 million to finance high-priority development projects, $250 million for buying petroleum products and a $200 million grant for small and medium-sized projects and industries. Since then, Saudi Arabia has remained on the sidelines. Tensions are running high between the two countries after the arrest and sentencing of an Egyptian human rights lawyer to 5 years in prison and 300 lashes caused an outcry in Cairo.


$2 billion

Libyan officials this week said they were completing an agreement to deposit $2 billion in Egypt’s Central Bank. The transaction, which has since been denied, is being seen as a quid pro quo agreement involving Egypt’s arrest of several Gaddafi loyalists. What has been confirmed and is worth a similar amount is a transaction that will see Egypt import 900,000 barrels of oil a month from Libya starting in April.

But this generosity, however unwavering, is unsustainable.

As the FT’s Middle East editor Roula Khalaf puts it:

This unconditional assistance has no chance of boosting confidence or putting the economy on a more sustainable track unless accompanied by political commitments.

In fact, propping up the budget this way only serves to artificially cushion the Muslim Brotherhood and allows them to delay an economic reform plan.  

Because after all, what’s the point of importing Libyan oil to feed an addiction to energy subsidies? Why support the Central Bank’s reserve pot when the country has struggled to put forward an economic plan that will safeguard future reserves?

This is why other countries have been wary of pouring money into Egypt, and in so doing, unfairly legitimising the Morsi administration at a time of political divisiveness. 

Without such budgetary support, the Brotherhood would be forced to be more conciliatory toward opposition groups and find compromises. Otherwise, they risk being voted out of office for failing to stop an economic backslide.

It’s important to differentiate between aid to Egypt and budgetary support for Mohammed Morsi and his government. These are not mutually exclusive.

 While Islamist governments such as Qatar and Libya may believe unconditional support will allow the Brotherhood to hold onto power, international donors should not withhold aid to Egypt’s people who are facing the very real possibility of chronic food and fuel shortages.  It is possible for donors to provide support toEgypt (for example by investing in key youth programmes and infrastructure projects) without propping up the Brotherhood. 

What is clear is that instability in Egypt will not bode well for the region, not for donor countries who need economic and political stability in Cairo.

Original Sin: Where Did Arab Economies Go Wrong?

Arab economies have become addicted to “unearned income streams” including fuel exports, foreign aid, and remittances. This fragile social contract has led countries across the Middle East and North Africa to increase subsidies on fuel and food at times of social unrest.

This is their “original sin” and is fast becoming a liability, say economists Adeel Malik and Bassem Awadallah in this important paper for the World Development journal recently made available to the public.

“External revenues—whether derived from oil, aid, or remittances—profoundly shape the region’s political economy” which only serves to “stifle economic and political incentives, turning economies away from production to patronage”.  

So as a result, on a per capita basis, the Middle East and North Africa received the highest overseas development assistance in 2008 ($73 compared to $49 in sub-Saharan Africa), the paper says. North Africa has consistently been the largest recipient of net aid per capita since 1960s (see table). These aid flows are largely driven by geo-political considerations.


The authors point out that despite the differences in cultures, economies and geographies across the Middle East and North Africa (Algeria to Syria for example), there are “at least five common denominators that cut across commonly recognized conceptual boundaries—for example, whether an Arab state is a monarchy or a republic, labor-scarce or labor abundant, resource-rich or resource-poor”.  One of these is the dependance on exports and aid. They spell out the other connecting factors:

First, all across the Arab world both economic and political power is concentrated in the hands of a few.

Second, the typical Arab state can be characterized as a security state; its coercive apparatus is both fierce and extensive.

Third, the broad contours of demographic change and the resulting youth bulges are fairly common across the region.

Fourth, Arab countries are mostly centralized states with a dominant public sector and, with few exceptions, weak private enterprise.

So what went wrong?

Malik and Awadallah go back to the Ottoman empire where centralized bureaucratic rule worked hard to prevent the emergence of autonomous social groups, and therefore valuable and profitable connections across the region and a strong private sector:

The Arab world has inherited an unfavorable and divisive legacy. The roots of a weak private sector run deep in history. Merchants were politically weak under the Ottomans.

A robust private sector was more feared than favored. When business thrived, it remained effectively in the hands of foreign merchants and local minorities. This was politically expedient: foreign merchants benefited from the economic privileges granted by rulers, but
seldom challenged their authority.

The break-up of the Ottoman Empire into a multitude of independent states created new political boundaries, but, over time, these became permanent economic boundaries.

The consequence of this divide meant that when globalisation was unavoidable, Arab economies did not integrate with one another but only with global structures of trade and finance.  It’s no surprise then that trade agreements in the Mena region are well below the global average.


The key concluding questions is: can the region harness its natural geographic strengths to build a future based on trade and production, or does it fall back on the geography of rents and patronage?  Access to the coast, Europe and a large labour force are attractive opportunities that emerging markets would jump at. So why has the Arab world failed to integrate?

Revolutions across the region are an “apt reminder that the prevailing model has reach its expiry date”, they say.

“This model built on oil and aid fortunes—and a leviathan state—is fast becoming a liability.”

Breakfast Wrap: Egypt’s Central Bank Reveals Naked Truth

Egypt’s Central Bank yesterday published a strangley frank statement that sheds light on the country’s terrible spending habits and signals how the Morsi administration is losing its grip on the economy. 

Just hours after the country’s president Mohammed Morsi made a speech to declare the economy was showing signs of improvement, the Central Bank said it plans to start foreign-exchange auctions in order to preserve foreign reserves after they plunged to “minimum and critical” levels.

The sales and purchases of US dollars will take place periodically and aim to “preserve foreign-currency reserves and ration their use,” according to an e-mailed statement from the Bank.

The new mechanism, which comes into effect today, will support the dollar interbank market.

The Egyptian pound is subject to a managed float but these auctions will mean the exchange rate is determined by the market rather than the Central Bank. It is a clear response to the depreciation of the pound, which fell to 6.1858 a dollar on Friday, near the lowest level in eight years.

A wave of dollarization, where the public have swapped their pounds for dollars, has exacerbated the pressure on the currency and the ability for the Central Bank to manage the pound’s fall. If you want to read more about Egypt’s currency situation, Rebel Economy put this guide together a few days ago.

But there’s more. The statement also revealed partly how Egypt’s reserves have been spent since the beginning of 2011:

$14 billion for the import of petroleum products and foodstuffs.
$8 billion for the payment of premiums and interest on foreign debt.
$13 billion to cover the exit of foreign investors from the local debt market.

The Central Bank said the total of $35 billion was financed from reserves plus other foreign exchange inflows.

It is the clearest sign yet of how Egypt’s costly energy subsidies have eaten up some of the country’s reserves to fund petroleum imports. Just this morning the ministry of finance said it has prepared $50 million to cover “urgent” petroleum import needs. 

Debt service payments in foreign debt is also significant considering the country boasts about low external debt.

Even so, the renewed transparency from the finance ministry, central bank and the presidency is a positive step toward communicating to the public the situation on the ground, something that has been missing for several months. With it, Egyptian officials have explained that the country is not in danger of going bankrupt as several media reports have signalled.  This morning Mumtaz el Saeed, Egypt’s finance minister said it was all an “illusion” and a “myth”.

It is unlikely that Egypt will go bankrupt simply because it is too big to fail but also because of the large amount of domestic debt Egypt has which can be rolled over easily unlike foreign debt which carries expensive penalties if not paid on time.

However, the country could get stuck in a perpetual cycle whereby debt is always rolled-over with no fear of default, supported by a cushion from foreign donors such as Qatar, Saudi Arabia and Turkey.

Breakfast Wrap: I’m Mad As Hell, Egypt Oil Loans, Turkey $1 BN

I’m Mad As Hell

Yesterday’s blog post on an incident involving the editor got some strong responses, and Rebel Economy thanks you for your interest, but most of all, for getting mad (angry, to you Englishmen).

In the words of Howard Beale in the 1970s American satirical film “The Network”:

I’m mad as hell, and I’m not going to take this anymore!”

Read More

Breakfast Wrap: Why “Quick Wins” Fail, Egypt Finance Explainer

Egypt’s prime minister was on a rare hour-long conference call with investors yesterday where he repeated the mantra that the country is working to jumpstart the economy and revive important sectors such as tourism.

He also reaffirmed that there would be no currency devaluation “at the moment”.  Instead he said “we are aiming within three months to create quick wins on the ground“.

Rebel Economy has warned before that “quick-wins” are never successful or sustainable.  A case in point is the “Morsi-meter”, established to show President Morsi’s performance in his first 100 days, but shows only 4 promises out of 64 have actually been achieved after 80 days in power.

Read More

Breakfast Wrap: Egypt Is Too Big To Fail

This post has been updated to include an article by Issandr El Amrani

Egypt is rolling in cash (theoretically).  Whether these promises will be upheld and where exactly this money is directed is not always clear; is it really to support the budget deficit, or is it to support the central bank’s policy of managing the currency?

Is the money really being directed to those who most need it and the sectors that are desperate for cash such as healthcare and education, or to building more power plants, roads and housing for the middle class?

One thing is for sure, Egypt is too large, too lucrative, too valuable for its resources, labour market and geographical location, to ignore.  The nation’s biggest trading partners, including the European Union (EU), China and the US, may need political stability in the country, but billions of dollars in trade exchange is also at stake.  These countries need Egypt’s economic strength back to fulfil their own demands.

Issandr El Amrani, or the Arabist, points out an article he wrote for Egypt Independent back in 2010, four months before Egypt’s uprising, where he outlines how “Egypt, just like the banks that were rescued by governments in the US and Europe, is too big to fail.”

Its systemic importance to the conduct of international relations in the Middle East is just too great to let it become a “rogue state” or spiral into chaos–even assuming that this badly run but closely controlled country is anywhere close to implosion.  

Mr El Amrani also draws attention to how Egypt has been bailed out several times by allies such as the US when facing cash crunches.  Egypt would have been bankrupt without this help.

Egypt’s problem, he writes, “is not that it teeters on the brink of an abyss, as the alarmists would have it, but that it is too complacent, too certain of a rescue, too ready to choose the path of least resistance and just muddle along.”

What’s changed?

Rebel Economy rounds up below the main pledges given to Egypt in the last few weeks (aside from the much discussed $4.8 billion from the IMF which is still being negotiated):

In the last few weeks several donors have pledged billions of dollars in aid to the nation, reigniting some hope that Egypt is back on track.  Italy has agreed to invest just over a billion dollars though it’s unclear exactly for what.

In May, the Egyptian government signed an agreement with Italy to swap a third tranche of the country’s debts worth $100 million for Italian investments in Egypt.

Turkey agreed during a visit by Egyptian officials to Istanbul to provide Egypt with a $2 billion financing package, Egypt’s finance minister said on Saturday.

The aid is aimed at strengthening Egypt’s foreign currency reserves and support investment in infrastructure. Half is expected to be in the form of bilateral loans.

Of course we can’t forget Qatar’s $2 billion in loans promised to support Egypt’s budget and the huge $18 billion promised investment into Egyptian tourism and industrial projects over the next five years.  Elsewhere in the Gulf, Saudi Arabia transferred $1.5 billion as direct budget support, approved $430 million in project aid and pledged a $750 million credit line to import oil products.

During a presidential visit to China in late August, Asia’s largest economy agreed to give Egypt 450 million yuan ($70.5 million) to finance infrastructure, electricity and environment projects, as well as donating 300 police cars.  A $200 million concessional loan to support small and medium size projects in Egypt was also signed.

Then there is the generous offer from US officials this month to wipe out $1 billion in debt for Egypt (apparently the two governments are nearing an agreement on this, though the deadly protests at US embassies across the Middle East in the last week may put a dampener on any deal) and the new investments on the horizon from 50 US corporations following a high profile visit to the country.

Just last week EU pledged $920 million in aid to the nation.  The EU is Egypt’s largest trading partner so it’s about more than politics but about sustaining a vital trade link to the Middle East and Africa.

Egypt’s is also in talks for additional budget support worth about $1 billion from the World Bank and the African Development Bank.

The OPEC Fund for International Development (OFID) has approved a concessional loan for Egypt worth $30 million to modernise irrigation infrastructure, boost food security and alleviate poverty for approximately 215,000 Egyptians residing near Cairo.

Egypt’s revenue from the Suez Canal will not fall this year from the $5.2 billion it achieved in 2011, the head of the Suez Canal Authority Mohab Memish told Reuters on Thursday.

Memish said the canal, which is a vital source of foreign currency in Egypt along with tourism, oil and gas exports and remittances from Egyptians living abroad, was among the most profitable entities in the country.

The canal has been used as one of the main arguments for supporting a controlled devaluation of the currency, because revenues from this would supposedly offset any impact from inflation hikes after a devaluation.

Revenue rose to $446.6 million in August, up three percent from July.

An Egyptian court has ruled that Assiut Cement’s privatisation contract be cancelled and the firm returned to state ownership.  

This is a symbolic development and a blow.  For those in support of the private sector it looks like a backwards movement, but it is a victory for millions in Egypt opposed to the “open door” policy the country introduced decades ago under Sadat. 

Assiut Cement has been 95.8 per cent owned by CEMEX, a global building materials firm, since its privatisation in 1999.

Workers at its factory have staged several strikes this year, demanding bonus payments, permanent contracts and improved conditions.  Thursday’s court ruling says that CEMEX is responsible for covering all the financial obligations and dues it incurred from 1999 until this year.

Assiut Cement has also been told to rehire workers it had dismissed while implementing a restructuring programme. A total of 2,545 labour contracts were terminated from a total of 3,777.


Egypt’s largest steel producer, Ezz Steel, swung to a profit in the first quarter as prices rose and a buoyant housing construction market absorbed growing volumes of long steel, the company said on Thursday.

Its founder Ahmed Ezz was hit with corruption charges as prosecutors probed the dealings of figures closely associated with the ousted government.

Ezz was a top official in Mubarak’s now disbanded political party. He quit the board of Ezz Steel and its subsidiary Ezz Dekheila last year to fight the charges against him. A court jailed him in September.

Egypt’s former minister of interior Habib El-Adly reportedly owns 42 palaces and villas, 75 feddens and a ‘fleet’ of luxury cars, state-owned Al-Ahram daily newspaper reported on Saturday.

Al-Ahram said it obtained official documents which will be handed to the country’s illicit gains authority that include details about El-Adly’s wealth, which is estimated at $3 billion. 

Qatar National Bank is to begin due diligence on National Societe Generale Bank (NSGB) with a view to a takeover, after receiving approval from Egypt’s central bank on Thursday.
It is the first step in QNB’s drive to acquire a 77.2% stake in the top Egyptian bank.

One Part Drought, One Part Assad

A vital, underreported topic explored by Shahrzad Mohtadi, in the Bulletin of Atomic Scientists, uncovers how climate change contributed to Syria’s bloody uprising.

From 1900 until 2005, there were six droughts of significance in Syria.

The seventh lasted from 2006 to 2010, an astounding four seasons, writes Mohtadi.

The Syrian drought has displaced more than 1.5 million people; entire families of agricultural workers and small-scale farmers moved from the country’s breadbasket region in the northeast to urban peripheries of the south. The drought tipped the scale of an unbalanced agricultural system that was already feeling the weight of policy mismanagement and unsustainable environmental practices. Decades of poorly planned agricultural policies now haunt Syria’s al-Assad regime.

Mohtadi writes of years of ignored warnings under Bashar Al Assad father, Hafez, and the culmination of a prolonged drought this year.

So, add climate change to the list of regional issues that, post-revolution, have become unbearable for populations across the Middle East and Africa.

Northern Iraq and Jordan suffered from the same drought that struck Syria. Egypt is threatened by rising sea levels in the Delta and use of the Nile by Ethiopia upstream, and Yemen is also in the grip of a severe water shortage, writes Robin Mills in The National.

The solution? Mills offers his point of view:

More stable Middle East governments need to be taking tangible steps to reduce their greenhouse gas emissions, and playing a constructive role at this November’s climate conference in Doha.

The region should be investing in climate resilience: research in dry-land agriculture and drought-resistant crops; coordinating transnational water rights; improving irrigation and water storage; reducing water waste and subsidies; alleviating poverty and managing internal migration.

Syria could also get help from water-rich Turkey, which has become a close ally after years of frosty relations.

But it may be too late to save the abandoned dry, cracked villages that millions of people have deserted.