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.

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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.


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