General Abdel Fattah el-Sisi must be revelling in the image of an all-powerful oligarch created by the media.
Apparently he reigns over a sprawling economic empire that journalists describe (in now rather cliched terms) as so varied that it covers everything from the production of flat-screen televisions and pasta to refrigerators and cards.
It’s claimed that the army has control over as much as 40% of the Egyptian economy. It owns football grounds and restaurants and provides services such as managing petrol stations.
Some even estimate the military control as much as 80% of manufacturing alone. But then again, that estimate came from FOX News, not the most reliable of sources.
The truth is, the Egyptian military is far from being a well-oiled business machine. In fact, historically, the army have been very bad at making money and its own failures have led it to seek other forms of income. Why else would an army diversify its interests so considerably?
The pitfalls of the military’s weak economic strategy are laid bare in this detailed paper by Stephen H. Gotowicki, a lieutenant colonel in the U.S. Army who worked in the Army’s Foreign Military Studies Office:
In the coming years, Egypt’s military production sector will probably decline. Egypt suffers from low productivity, a lack of adequate funding and a dearth of external markets. Egypt’s largest customer during the 1980s, Iraq, has been removed from the market place as a result of UN sanctions imposed against Iraq for its invasion of Kuwait. Egyptian military products also face increased competition. The cash-strapped Russians are offering highly advanced weapons at bargain prices.
Egypt’s military industries have not promoted import substitution or sustained export earnings. The technological benefit of the armed forces’ military industrial endeavors have proven to be only marginal to Egypt’s economic developments. While Egypt does assemble sophisticated military weapons systems, the facilities to do so are provided by Western businesses on a “turn key” basis.
The Egyptians receive kits for assembly, but the technology involved is closely maintained by the Western partner. Hence, little technology that would allow independent Egyptian development of systems has been received. For Egypt, technology is a conundrum — high technology industrial efforts are a capital intensive endeavor; Egypt has a labor intensive economy with little capital. Finally, it would appear that Egypt’s military industries have done little to enhance its regional power.
In other words, Egypt’s army failed miserably at the one thing they should have been doing well – military production.
The piece goes onto explain how “self-sufficiency would permit a greater measure of Egyptian independence in security matters and should allow the Egyptian military to fight longer without foreign resupply.” Now the refrigerator production and petrol station management makes sense. The army, if anything, is simply trying to keep its head above water.
Contrary to popular belief, General Sisi and his partners do not have a powerful grip on the economy, nor are they savvy businessmen out to expand a flourishing empire. They are interested mostly in protecting the economic interests that allow them to be self-sufficient and not reliant on foreign partners.
It’s a lazy approach to their business and part of the reason why we have seen the army interfere in the transition so much – to manoeuvre Egypt, as much as possible, out of economic decline and shield its factories and production lines.
But still, the military plays no significant role in any of the major Egyptian industries today – oil and gas, steel and cement. The businesses that the military does play a role in would certainly not give them control of over 40% of the economy.
That figure has never really been verified or proven, with only a few rare instances when the military did reveal how much money they make.
At one point just before the January 25th revolution, Businessweek ran an interview with the then minister of military production, Sayed Meshaal, saying the army made about $345 million in revenue from the private sector, a far cry from the billions of dollars they are claimed to generate.
What’s more, the army’s “economic strategy” is riddled with corrupt practices. Mr Meshaal, who served as the minister of military production till 2011, is now being investigated for awarding contracts “above cost”.
In another example of dodgy money management, millions of dollars of profits from military industry exports during the 1980s and 1990s were reportedly returned to the military coffers with no government accounting or taxes (i.e. “off-budget”).
The military are far from being shrewd businessmen. Instead, because of a track record of losing contracts, bad ties to regional powers and dodgy accountancy, the army are relying on selling bottled water and other domestic goods to survive.
Plus, the military’s role in the economy actually stifles free market reform by increasing direct government involvement in the markets.
General Sisi has said nothing about the army’s economic prerogative but we can already deduce what the military is interested in: remaining conservative, keeping policy simple without innovation or anything too radical (such as cutting those precious energy subsidies that the army rely on so much to run their factories at a cut price) and focusing on big, state-run projects (just like Mubarak).
With no real systemic changes being offered, the army has missed an opportunity to save the economy and much to their demise, protect their own economic interests.
News that Washington will suspend a sizeable chunk of military aid to Egypt was met with little more than a shrug from Egypt watchers and analysts who said the decision was unsurprising.
The move to trim part of the $1.3 billion in military aid to Egypt had been in question since the US issued a warning in July when the military ousted Islamist president Mohammed Morsi.
For many, it was all talk not action.
“I don’t see it as any more than a symbolic slap on the wrist,” H. A. Hellyer, an associate fellow at the Royal United Services Institute, told Global Post.
In the short run, as this Associated Press editorial argues, “the suspension of hundreds of millions of dollars in aid will have little effect on Egypt’s military and its ability to defend itself. The cutoff probably will not do much damage to most of the companies with contracts to build such weapons.”
Indeed, a report by Al Jazeera revealed that US military aid has flowed as normal to the Egyptian cities of Damietta and Alexandria since the coup began, despite warnings.
Some also said the slap on the wrist decision avoids the real debate at the heart of the aid. Jonathan Guyer of the Cairo Review explains:
If we agree that American assistance doesn’t do much, then why continue it? The basis of this gargantuan military aid package is the 1979 peace accord between Egypt and Israel; that should be the topic under discussion rather than the idea of “leverage” in the abstract.
If Washington is going to cut aid, it must carry out the policy change with a bang, not a whimper.
On the flip side, for supporters of the military-backed overthrow, the announcement inflamed tempers. Naguib Sawiris, the politician and billionaire who has never been short on opinions, started a Twitter row:
Cutting military aid to Egypt is an arrogant counterproductive action! Do not underestimate the pride of the Egyptian people!
— Naguib Sawiris (@NaguibSawiris) October 11, 2013
But a healthy dose of realism from a few Egypt commentators doused Sawiris’ outburst:
— arabist (@arabist) October 11, 2013
How is US cutting its military aid to #Egypt arrogant? It seems that expecting aid without conditions is far more arrogant.
— Matt Bradley (@MattMcBradley) October 12, 2013
For all the discussion of symbolism and how much impact the aid cuts will make on Egypt, the US undeniably has a significant amount of fire power in the Middle East. The decision to suspend some aid, in and of itself, is a big deal that will influence other major donors in their attitude toward Egypt.
Aside from Gulf aid (and I’ve been clear about why that’s not a great idea in the long-run here and here) Cairo has pretty much lost the confidence of every major donor. Washington’s announcement is a nail in the coffin for the European Union, the World Bank and the African Development Bank who have been closely monitoring developments.
Of course, the US is just one of many countries and institutions that provide military and financial assistance to Egypt, as the chart compiled by the Center for Global Development shows below. Even though, taken as a whole, European bilateral aid plus EU assistance is double that of the United States, the US is still the single largest contributor and has huge voting power at other international organisations such as the International Monetary Fund, where the country’s quota on the board is the largest. The US can stop Egypt getting the help it needs when it undoubtedly asks for it in a few years, if not earlier.
Whether Egypt likes it or not, even a symbolic decision is damaging to Cairo’s ever-withering reputation in the eyes of the international community.
The only saving grace is that those in Egypt’s government realise how detrimental the US decision is to its chances of securing other aid and make moves to speed up the election process and be rid of the the military’s undemocratic rule.
But somehow, with condemnations of the US coming fast and steady from all parts of the administration, that looks very unlikely.
Instead, as Cairo isolates itself more and more it further drives itself into the power-hungry hands of the Gulf.
Questions were already being raised about Egypt’s new liberals and whether they really were as democratic as they claimed to be.
But, as Sharif Abdel Kouddous wrote in the Nation recently, “the turning point came on August 14, when the military and security forces brutally cleared the two mass sit-ins in Cairo that formed the epicenter of support for the ousted president”.
For critics of Egypt’s liberals, the killings of hundreds of people confirmed that this collection of non-Islamist groups were out for blood and their sole objective was to suppress the Muslim Brotherhood and banish them from the political sphere.
Effectively, these groups turned their back on the very morals that defined their movement: political pluralism, or the idea that power should be dispersed among a variety of ideological and economic groups.
For the defenders of the liberal movement, the group has simply lost their way. Pulled between the strong desire to oust an ineffective and unpopular president and the severity of the crackdown against mostly innocent civilians, leading members of the liberal movement have found themselves questioning their political direction.
Hussein Gohar, the international secretary for the Egyptian Social Democratic Party voiced the conflicting emotions of the actions that led to the downfall of Islamist president Mohammed Morsi. Speaking to Abdel Kouddous, he says:
“I think the army was forced to what it did on July 3 and August 14, with the breakup of the sit-ins. But I think the whole thing was handled in the wrong way. And if you say you’re against what has happened, you’re branded a traitor.”
No doubt, the right way would have spared the lives of the protesters. But you can’t have it both ways especially when the motive is to dispose of a president by military coup.
Now the question is, if Egypt’s so-called liberal groups have lost their political compass, how will they approach the challenge of an economic recovery?
The interim government has already shown it is unlikely to brave any sweeping changes to the budget and has instead played a populist card reminiscent of the Mubarak era, by calling for more spending even at a time when expenditure (particularly on public sector jobs and food and energy subsidies) needs to be reigned in.
Some shady characters are also making their way back to the economic decision making scene. Hassan Heikal, who this week formally resigned from Egyptian investment bank EFG Hermes, (though he was quietly replaced as CEO earlier this year, as Rebel Economy reported in February) simultaneously announced his intention to “focus on public service” by “helping devise economic initiatives in Egypt”.
Mr Heikal faces charges of insider trading, along with eight other defendants including the Mubarak sons. Even if he is cleared of any wrongdoing, his reputation has been tainted and is the reason the bank gave him the boot (of course the official statement says otherwise and describes him as “an architect of EFG Hermes’s regional expansion”).
But more worrying is the extent to which the liberals’ connection and reliance on the state will impact economic decision making.
As Samuel Tadros, an Egypt expert and a fellow at Hudson Institute’s Center for Religious Freedom, points out in this Time magazine piece, liberalism has a long history with the state:
“In Egypt, liberalism didn’t start as it did in Europe with the emergence of an independent bourgeoisie that sought to limit the powers of the state and other entrenched institutions.
In Egypt, liberalism was born with the rise of the civil-servant class in the mid–19th century. Since civil servants are a part of the state, this liberalism is not at all interested in limiting the role of the state.”
Even at the height of the revolution, when the Islamists combined forces with the liberals, the state could not be broken completely. And of course, the security apparatus is again acting with impunity.
That is already impacting political decisions that will undoubtedly have economic ramifications.
For one, Kamal Abu Eita, a longtime unionist turned politician (he’s now minister of manpower and migration) appears to have been co-opted by the military to the detriment of an already struggling labour movement.
After first applauding the armed forces’ move to overthrow Morsi, he has since taken steps to sack key members of the country’s trade union federation reportedly because they were Muslim Brotherhood members.
And Mr Abu Eita has already displayed his alliance to the military, by doing little to protect labourers from security crackdowns against two strikes in August, at the Suez Steel Company and at the Scimitar Petroleum Company.
Of course, labour unions were tossed an olive branch when the government decided to raise minimum wages for all state employees from 700 Egyptian pounds ($102) to 1,200 pounds ($174) as of January 2014, but that wasn’t good enough for many local and international trade unions. Plus, with spending on public sector jobs already soaring, Egypt officials may struggle to stick to their promise to pay for another increase.
The military did the liberals a favour by wiping out the Islamist presidency, and now they’re the paying the price for it by returning the favour through watered down economic policies that adhere to the state and the military.
Could Egypt see a return of Mubarakesque policies that prioritise subsidies on heavy industry (that have not yet been successfully removed), instead of subsidies for the poor? Will officials continuously promise impossible levels of investment or development in state projects that will inevitably stall, rather than actively implementing economic legislation designed to improve Egypt’s competitiveness?
So far, the liberal interim government has shown it will take the course that the state and the military determines at the expense of the ideology that it stands for and the people it serves.
Nothing has damaged Egypt’s economy more than the threat to security and stability. The perception of risk is enough to derail an entire economy and it will continue to keep investors away. The killings of hundreds of innocent civilians in a bloody crackdown a few weeks ago only compounded this perception and made it reality.
The fear that a jihadist and extremist element may have been borne out of the military coup is materialising. An attack on a police station in central Cairo and plans for new mass protests by the Brotherhood on Tuesday shows how elusive stability is.
Though a state of emergency and a curfew has to some extent successfully shrunk the number and intensity of protests, the interim government has yet to show that it is in control (and not the army).
Security problems this week at the Suez Canal the waterway which handles about 8% of world trade, is among the only areas in Egypt that highlights just how damaging the new threats that are emerging after Islamist president Mohammed Morsi’s ouster.
Half our petroleum products are gifts from Arab countries, says authority – Egypt Independent
This would be funny if it wasn’t so damaging for Egypt’s deficit and the wider economy. The head of the state oil company, the Egyptian General Petroleum Corporation, admitted that 50% of the petroleum products that the authority needs to import come in the form of gifts from Arab countries as part of the aid they provide to help the Egyptian economy.
I’ve said it before and will say it again: Rather than depend on the GCC for plugging a gap that will always reappear, Egypt should try to renegotiate real investment from these countries and seek technical expertise on how to restructure energy subsidies. The welfare on energy is the biggest drain on the budget and will continue to be so until the price of fuel is raised for those who can afford it.
Speaking of which:
UAE to shower Egypt with additional $2 billion – Ahram Online
Syrian government backtracks on plans to charge customers for plastic bags for bread- Syria News (Arabic)
Probably wise considering Syrians are struggling to buy bread in the first place. The government was going to charge consumers 4 Syrian pounds a bag after bakeries and manufacturing plants financial losses mounted.
The price of most products has increased as the currency depreciates against the dollar.
Tenders for food commodities fail to draw interest - Reuters
Syria has cancelled two tenders for food commodities in recent weeks, Reuters has reported, threatening food supplies to the population.
Libya imports fuel to keep power on – World Bulletin
Libya has begun importing diesel and fuel oil to keep power plants operating after protests closed most of the gas fields in its eastern region which usually supply them, the World Bulletin reports.
Analysts told me last week that protests around oil fields have caused a 30% drop in production this year, a massive amount for a country that owes its post-revolution revival on oil.
In the meantime:
Under the agreement, Libya will supply energy products to Malta at preferential rates. That will include crude and refined oil, jet fuel and LPG, the Libya Herald reports. In return, Malta will be aid Libya in transport and civil aviation.
However, the agreement won’t be in place until Libya resumes normal production. Considering the country is struggling with its own oil exports and supply (Oil exports are down to 160,000 barrels a day), this doesn’t seem like it will happen for some time.
And another critical part of the arrangement is for Libyan oil and gas workers to learn English in Malta.
1) Egypt and Turkey – Bloomberg
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.
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”.
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.
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.
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 Syria – Reuters
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.
“I have made many mistakes,” conceded Egypt’s President Mohammed Morsi in a major speech last week after just one year in office.
While not elaborating on what exactly went wrong, Morsi will today be haunted by his mismanagement as thousands take part in anti-government demonstrations across the country.
Rebel Economy is glad to shed light on the economic disasters of the last year:
1) The Failure of the Renaissance Project
Even from the start, the president’s “economic plan” was someone else’s plan – a manifesto created by the Muslim Brotherhood’s first choice for president, Khairat el-Shater, until he was disqualified.
Ambitiously called the Renaissance Project, or Al Nahda in Arabic, the 20-year plan trumpeted an Islamist roadmap for Egypt after the revolution in 2011. Morsi latched onto it later, and it became the pillar of the his presidential campaign last June.
The Project envisioned an ambitious transformation of Egypt’s economy that was expected to lead to a gross domestic product of 6.5% or 7% in five years, though how this growth rate would be reached was unclear.
Instead, Egypt has struggled to achieve even half this growth and the project has quickly become more of an incubator for grand ideas than a blueprint proposing specific measures for economic improvement.
Not only has he struggled to keep even the simplest of promises that he had vowed to solve in his first 100 days in office, but the plan has caused rifts between the government, the presidency and even the team behind the Renaissance Project.
2) The Pound’s Fall
Egypt’s domestic currency, the Egyptian pound, has lost over 15% of its value against the dollar during the course of Morsi’s time in office. The Central Bank of Egypt was forced to loosen its grip on the currency towards the end of last year, but many in the banking community criticised the timing of the new measures, saying the Bank should have adopted these measures a year earlier and that the late reaction will hit vulnerable people the hardest.
That is already proving to be the case.
The pound’s drop to around 7 Egyptian pounds to the dollar (and 8 pounds on the black market), from 6 pounds last year, has contributed to a rise in inflation which economists say is on course to reach double digits in the coming months. In May, the country’s annual urban inflation rate climbed to 8.2%, up from 8.1% in April and 7.6% in March, as food prices rise:
The price for a kilogram of chicken is about 33 pounds, or $4.77, placing meat out of reach of the many Egyptians who live under the poverty line of $2 a day. Azza Ahmed, a 55-year-old housewife from Cairo, said she has seen prices of as high as 57 pounds in some stores.
From the Wall Street Journal
3) No Reform of Energy Subsidies
Another pressure likely to contribute to double digit inflation is rising energy use, especially during Egypt’s hot summer months. Queues at petrol stations are already causing frustration as demand exceeds supply of locally refined gasoline. At the same time, diesel shortages are putting more pressure on the country’s finances, as it pays more to import more. This is undermining confidence in international oil companies, which are owed billions of dollars.
The fear of a public backlash by enacting energy subsidy reforms has so far steered the president and the government away from any dramatic moves, but as queues get longer, inflationary pressures rise, social unrest will become an intractable problem for the government.
As Rebel Economy has argued frequently, until energy subsidies are reformed (one reform strategy outlined here) so that the state is stops giving out cheap fuel to everyone, even those who don’t need it, then these pressures will continue.
4) Rising Jobless Rate
The country’s unemployment rate now stands at 13.2%. It was 8.9% on the eve of Arab Spring, and was hovering at 12.5% about a year ago. At the current rate of joblessness, 63,000 more Egyptians are unemployed than the previous quarter and a staggering 1.2 million (at least) are out of a job compared to the same quarter of 2010, according to the government statistics agency, Capmas.
And even if a few thousand jobs are created every month, the level of disruption from strikes, protests and the general economic downturn (from tourism and foreign investment) means this is unlikely to make a dent in the jobless rate.
But rather than invest in young graduates and the job creation in the private sector (which is so much more efficient than the public sector), the government has taken the easy way out: paying government staff a little more to continue keeping the 6 million employed in the public sector just content enough not to protest.
Economists at London-based Capital Economics say this has had a detrimental impact on the budget deficit:
It appears that the government has resorted to increased spending in an attempt to support the economy and quell civil unrest. Rising public sector salaries and pensions, coupled with ballooning subsidy expenditure, has caused the budget deficit to widen from 11% of GDP when President Morsi assumed office, to over 14% of GDP at present.
That debt position has put Egypt in a risky category. Egyptian credit default swaps, a kind of insurance against debt defaults, have climbed 12.5 basis points to a new record of 887.5 basis points on Thursday, according to the Financial Times:
This means it costs $887,500 a year for five years to insure $10m of Egyptian debt, the fifth highest in the world after surpassing Pakistan this week. Only Argentina, Greece, Venezuela and Cyprus are seen as more at risk of default than Egypt.
5) Drop In Tourism and Foreign Investment
Once major sources of hard-currency income, tourism revenues and foreign direct investment (FDI) have been hit hard. Even though tourist arrivals have picked up to 12 million tourists annually, the numbers are still nowhere near what is now seen as Egypt’s “golden year” for tourism in 2010, when nearly 15 million tourists made their way to Egypt.
Despite denials from the country’s Islamist government that this is the case, heightened political instability, localised protests that have turned violent and rising incidents of sexual harassment has led many embassies to warn about visits to Egypt, especially Cairo.
And while FDI has picked up, climbing to $3.1 billion today, from $1.8 a year ago, the figure is still nowhere near the pre-revolution level of $5.2 billion. Investors have adopted a permanent “Wait-and-see” attitude to Egypt, considering it too important to ignore entirely, but too risky to dive into.
6) No IMF loan deal
Failure to sign a $4.8 billion with the International Monetary Fund is arguably among Morsi’s biggest, and most high-profile, failures.
Negotiations have been ongoing for two years, and the country is still no closer to securing an agreement.
Instead key members of the IMF negotiating team have jumped ship, undermining the credibility of the president and his ability to steer the country away from an economic crisis.
Controversial as the loan is among some Egyptians wary of the previous deals with the Fund, the agreement would give Egypt the international endorsement it desperately needs now for long-term, sustainable investors to come forward from Europe, the US and international banks like the African Development Bank. The IMF’s priority is also right-siding the budget, and so the deal is much more than just money.
So far, Egypt has fallen back on the billions of dollars worth of loans and oil it is getting from Arab allies (namely Qatar). But none of this is for free, despite assertions to the contrary. The tap will not run forever.
Reforms and budgetary changes including reforming energy subsidies and raising taxes are also tied up in the IMF loan.
But so far, Morsi’s approach to the IMF talks sum up his approach to the economy overall: a confused, barely composed afterthought.
The president must prioritise the economy, and to do that means putting the country and important reforms before his own political career. And if there’s one thing we know after Egypt’s revolution in 2011, if a leader is more interested in power than the people he is meant to inspire, he won’t last long.
There is no denying that women in Egypt—Egyptians and foreigners alike—face big challenges on the street, let alone at work and home.
Harassment and discrimination in and outside the workplace is common and is barring enough women from entering male-dominated sectors like manufacturing or engineering.
In a UN Women 2013 study, 99.3% of Egyptian women surveyed admitted to being sexually harassed, but in 85% of the cases, none of the bystanders to the harassment incident intervened to help.
While the media has focused attention on resolving endemic sexual harassment, officials and activists often do not discuss the economic benefit of increasing women’s participation in the formal economy.
The latest data from Egypt’s government statistics agency, CAMPAS, shows Egypt’s women are severely underemployed — 24.7% of the women in Egypt’s labour force are unemployed compared to the 9.6% of males.
As the country’s economy slowed, the number of jobs declined and the competition for jobs between men and women intensified.
Yet amid the on-going political standoff and struggling economy, mobilising female employment never emerged as a priority for Egypt’s government while the female workforce is recognised as a growing economic force.
“We’re at a tipping point of women’s engagement in the economy, as we move from advocacy of women to the smart business of real investment in women,” says Sallie Krawcheck, a former Bank of America executive and recent buyer of 85 Broads network, a women’s network founded by Goldman Sachs executives.
Over the next decade, about a billion women are expected to enter the global workforce, making their participation and engagement in the economy all the more significant.
But is Egypt ignoring a potential massive source of economic growth, as other options of financing and growth are running low?
According to a study by Booz Allen consulting firm, raising the level of female employment to male levels could boost Egypt’s GDP by as much as 34% percent.
“We were very conservative with our calculations, but still we got this number,” says Mounira Jamjoom, a senior researcher at Booz Allen & Co.
Even if women choose to work part-time, and they have less labour productivity than men (given men were in the workforce before women), the impact on GDP would still be high, Ms Jamjoom.
And propelling women into the workforce could have more a dramatic impact on the lives of millions of Egyptians.
“Economics shapes behaviors, sexual and reproductive. It will change dynamics within marriage, give young people empowerment, help them to realise autonomy also in their private lives,” says Shereen El Feki, author of Sex and the Citadel: Intimate Life in a Changing Arab World, who spent five years researching sexuality in the Arab region.
But perhaps the biggest hurdle of all is not the government’s reluctance to address women’s unemployment, but the attitudes of a women’s place in society at large.
These issues are not exclusive to Egypt or the Middle East for that matter.
“The difference comes in what the culture defines for men and women about what prioritising family over work means,” says Robin J. Ely, economics professor at Harvard Business School.
“For men, it’s about being a breadwinner. A man might prioritize family over work by taking a bigger job. This plays out the opposite way for women.”
Rethinking these definitions has the potential to yield dramatic economic results for Egypt, but is the country ready for a cultural overhaul?
Late one night in November 2010, a plane carrying dozens of Colombian men touched down in this glittering seaside capital [Abu Dhabi]. Whisked through customs by an Emirati intelligence officer, the group boarded an unmarked bus and drove roughly 20 miles to a windswept military complex in the desert sand.
The Colombians had entered the United Arab Emirates posing as construction workers. In fact, they were soldiers for a secret American-led mercenary army being built by Erik Prince, the billionaire founder of Blackwater Worldwide, with $529 million from the oil-soaked sheikdom.
By Mark Mazzetti and Emily B. Hager for The New York Times, Secret Desert Force Set Up by Blackwater, May 2011
For any expatriate who has spent time in the United Arab Emirates, the luxury lifestyle soon gives way to a seedy underworld, which is only a paradise for fugitives on the run.
The UAE, after all, is “an autocracy with the sheen of a progressive, modern state”, according to the New York Times’ reporters who exposed Erik Prince, the founder of Blackwater, and his secret army.
But for the Colombians he recruited for the battalion intended to beef up the UAE’s military presence, Abu Dhabi is the “Arabian Dream” offering a better quality of life.
Prince, who had already been a driving force in the boom in wartime contracting that began after the September 11, 2001, attacks, was hired by the crown prince of Abu Dhabi, Sheikh Mohamed bin Zayed al-Nahyan, to put together a squad of foreign troops for the UAE.
He outsourced critical parts of the UAE’s defense to mercenaries from countries including Colombia and South Africa, in a plan said to have been drafted months before the so-called Arab Spring revolts that many experts believe are unlikely to spread to the UAE. But Iran was a particular concern.
The mercenaries live in a training camp, located on an Emirati base called Zayed Military City:
It is hidden behind concrete walls laced with barbed wire. Photographs show rows of identical yellow temporary buildings, used for barracks and mess halls, and a motor pool, which houses Humvees and fuel trucks.
Secret Desert Force Set Up by Blackwater, May 2011
It does not sound like much, but for these imported soldiers, joining the operation was an opportunity to earn a lot of money and see a new part of the world.
This week, Columbia’s daily newspaper EL TIEMPO, gained exclusive access to some of the Colombian paramilitaries who spoke of the “Arabian Dream” in the UAE.
For the 1,400 Colombian troops in Abu Dhabi, the UAE offers “not just a medal, but a proper paycheck”, according to a translation of the Spanish article.
“Why did we decide to leave? That’s what people ask us. The response is easy: Quality of life,” they [the troops] say.Colombianos en busca del sueño árabe, El Tiempo, February 2013
One officer describes the stark difference in quality of life. In Columbia, he received a bonus of 800,000 pesos ($448.8). In Abu Dhabi, he has a salary of $3,000, receives housing, food and healthcare free. He has also learnt English, and in the evenings, he and his colleagues travel in buses into the city centre, where they can buy food and supplies. They get weekends off.
The long weeks of combat, sleepless nights, patrolling and watching for landmines were left behind, the officers told EL TIEMPO.
Reflex Responses, a company known as R2 and contracted by the UAE government to train and recruit the troops, spends roughly $9 million per month maintaining the battalion, which includes expenditures for employee salaries, ammunition and wages for dozens of domestic workers who cook meals, wash clothes and clean the camp, according to the NYT report.
The Colombians “never wanted for anything”, said Calixto Rincón, a 13-year veteran of Colombia’s National Police force who is now back in Colombia after serving as a mercenary in the UAE.
The UAE and American leaders even arranged to have a chef travel from Colombia to make traditional soups.
“Here, you can’t look at the women like in Colombia, because you can end up in jail,” one officer told EL TIEMPO. “A wrong glance can create offense, which gets reported to the police”.Meanwhile another told the New York Times: “We didn’t have permission to even look through the door. We were only allowed outside for our morning jog, and all we could see was sand everywhere.”
But even this grievance was addressed by the American trainers.
One evening, the NYT reporters wrote, “after months stationed in the desert, [the troops] boarded an unmarked bus and were driven to hotels in central Dubai. There, some R2 executives had arranged for them to spend the evening with prostitutes.”
A number of you may have already read the speech from the US Ambassador to Egypt, Anne Patterson, on Egypt’s political and economic woes.
What she said was not particularly surprising or profound – much of it has already been argued by economists, analysts and journalists. But Ambassador Patterson’s speech eloquently and authoritatively wraps up Egypt’s complex issues in a neat package everyone can understand.
It is difficult to find another example of this from an official outside Egypt, including from Patterson herself.
This time, she clearly spelled out what has gone wrong within the Morsi administration and what must change. Unsurprisingly, that mostly involves addressing economic problems:
The most catastrophic path is for the government and the political leadership of the country – whether in power or in opposition – to avoid decisions, to show no leadership, to ignore the economic situation of the country.
When management of the economy is treated as a by-product of political disputes instead of a core function of political leadership, the business community is left trying to protect itself instead of investing and growing.
So what path should Egypt take? Here are her top three priorities:
As I said, it’s not something we haven’t heard before. However, if we heard this speech from Mohammed Morsi or his prime minister Hisham Qandil, it would be a complete breakthrough.
Quite simply, Ambassador Patterson showed Egypt how to deliver difficult news with the hope for change and reform.
The Morsi administration’s track record for communicating these issues with the public is abysmal. Either the Muslim Brotherhood enrol themselves in some public speech lessons quickly, or they can be more inclusive and relax their tight circle to allow experts with experience to help lead the way to recovery.