From Washington, With A Slap

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:

But a healthy dose of realism from a few Egypt commentators doused Sawiris’ outburst:

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. 

aidto egypt

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. 

Egypt’s Misguided Liberals

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.

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.

How the Arab Spring Shook Up Oil Markets

Among the first reactors to the Arab Spring back in January 2011 were the oil markets. The oil price, already volatile in the aftermath of the global financial crisis, became even more unstable as concerns that the oil supply would be choked off if the political problems of the Middle East affected global oil production.

Now, the world is dependant on a few Gulf countries, namely Saudi Arabia, to fill the supply gap. But should the Arab Spring countries, the majority of whom are not big oil producers, be a primary concern for unstable oil markets? Indeed, sometimes the oil market can be wrong, like it was on Egypt. Sometimes the oil market can prepare for the worst case scenario as it did on Syria.

Rebel Economy asked Justin Dargin, an energy and Middle East scholar at the University of Oxford, to break down the misconceptions we have about the oil market and its relation to Arab countries in transition.


Dargin has advised some of the largest oil companies in the world and worked in the legal department at the Organization of Petroleum Exporting Countries also advising on multilateral initiatives.

  • The oil market has been at one of its most unstable points since World War Two. Many have linked the risks from the countries of the Arab Spring to this tumultuous period. Is this a fair assumption?

There was a chain reaction in the global economy. After the protests began in Tunisia and spread to other MENA countries, for a period of time, investors speculated that the instability would reach the major oil producing Arab countries. The trepidation that the major Arab oil producing countries were at risk for sustained political unrest caused the global oil market to react.

But, what is problematic for the global economy is not elevated oil prices, per se, rather it is that the oil market is much more volatile because of the tenuous political situation in the MENA region. Additionally, the Arab Spring began at an already delicate time for the global economy that was still reeling from the global financial crisis.

Much of the fluctuation in the global oil market is driven by what is known as the “fear premium.”

The fear premium is basically a rise in the price of a commodity, such as oil, that is based on the expectation that a certain event will happen that would significantly impact the market in a negative way. This relates to the Arab Spring as there was a fear that several events could potentially happen. Global investors speculated that in the beginning months of the Arab Spring, there could be oil production disruption in the oil producing Gulf countries.

There was also the fear that perhaps several important sea-lanes and canals, such as the Strait of Hormuz or the Suez Canal, could be blocked. Furthermore, a bit later on during the Arab Spring, terrorism fears grew and it was thought that the regional power vacuum could encourage militant groups to launch attacks on MENA energy infrastructure.

While these fears have largely subsided (although not completely), the international price of oil still remains extremely unstable because of this uncertainty.

So when we examine global energy price instability because of political instability in the MENA region, we must realize that this is “political risk” premium that keeps oil prices artificially high.

The oil market fundamentals are relatively sound at the moment, with increased oil and natural gas production occurring in North America due to the shale oil production boom and increased production in Iraq and other areas around the world.

Nonetheless, when we assess the actual impact of the Arab Spring, the oil producing country of note that had notable disruption was Libya. And, when viewed in context, Libya supplies a minor amount of the global oil supply, while Syria, Egypt, Yemen and other Arab countries that had their own “Arab Springs” are not major oil producers of any note.

The fear premium is based on the fear that the major oil producing Arab countries of Algeria and the Gulf (and perhaps Iraq) will have their production disrupted which would significantly reduce available oil on the market.

  • But the perception that the oil supply could be affected, even if it is incorrect, can still make more impact than real pressures. What is the long-term impact of this on oil markets? 

The oil market is uniquely vulnerable to fluctuation based on fears, whether justifiable or not. This is because most oil exports hail from regions whereby state formation occurred relatively recently and nation-state legitimacy is still being constructed.

Because many of the nation-states in the MENA region are relatively recent creations, political stability is still evolving. The primary perception in most commodity markets especially that of oil, is that the region is prone to wars, coups, terrorism and civil disturbances in ways that can definitively disrupt production of the lifeblood of the global economy.

Ultimately, the long-term impact of investor perception in the oil market, or in other words, the fear premium, is that the oil price will become increasingly divorced from the supply fundamentals thereby leading to a much more volatile market. And, as commodity markets in general become more computerized and investors are able to make split second decisions regarding investments, this problem will be exacerbated.

Egypt’s Spin Doctors

Words, Rudyard Kipling once said, are the most powerful drug used by mankind.

Individuals, companies, political parties and governments will work tirelessly to ensure the right words are transmitted to as many people as possible. Public relations can make or break a nation.

So it’s no surprise Egypt’s propaganda wheel is working overtime. In fact, it’s one of the few features binding the country’s warring sects.

While the military and some non-Islamist factions have branded the Muslim Brotherhood as terrorists and thugs, Brotherhood supporters consider the opposition as “putschists”, who are furthering a fascist agenda.

Slogans and logos now distinguish who is on what side, with each party trying to outdo the other in the hopes of capturing the majority support.

Except the propaganda, unsurprisingly, hasn’t worked. Egypt remains polarised and Egyptians suspicious of each other. Words spoken or written by the military, government officials or Brotherhood spokespeople now all seem to be part of the same political game citizens are no longer involved in.

As the Economist’s Max Rodenbeck highlighted:

At the hands of politicians, the truth can fare poorly in peacetime, too. Yet in Egypt, though the country is not at war, and normal politics is pretty much suspended since the army toppled an increasingly unpopular elected government last month, the truth is taking an unprecedented beating.

Now, Spin Doctors run Egypt.

General Abdel Fattah el-Sisi, who authorised a bloody crackdown on his opponents, has become a hero to some for the military overthrow of Islamist president Mohammed Morsi. His trademark dark glasses and soft-spoken addresses to the nation have won over Egyptians who were desperate for the stability Morsi failed to provide.


His picture, at times flanked by the logo “Egypt Fights Terrorism”, has been plastered on cars, shops and buildings.

“Right now, he could probably win an election at a canter,” Heba Saleh writes in the Financial Times.

Meanwhile, Gehad El-Haddad, the spokesman for the Muslim Brotherhood has been open to the international media, regularly engaging with his followers on Twitter and declaring the military overthrow of Morsi a crime against humanity and a bloody coup.

Muslim Brotherhood supporters, under the “Anti-Coup Alliance” have flooded journalists, diplomats and foreigners with English-language emailed statements daily.

Of course, some of these movements were wildly successful. The uprisings of January 25, 2011 and then again in June 30, 2013 were driven partly by organised PR campaigns, drawing hundreds of thousands to the streets.

Some have been less successful. Tamarod (“Rebel” in Arabic), the Egyptian youth movement that rallied street protests against Morsi, is struggling to retain momentum.  Splits are forming within the group and some members have announced their collective resignation.

Black Bloc, more of a fashion fad than a movement, entered the political sphere in January this year, but drew more attention for their all black outfits and balaclavas than their anti-Brotherhood agenda.  Months later, the group has lost steam and any of the original excitement they once garnered.

Still, small campaigns come and go. Masmou3 (“Heard” in Arabic) was created in the aftermath of the military overthrow to protest against the military-backed regime and the Brotherhood. Daily protests involved banging on pots and pans during the curfew.  But the campaign was short-lived and soon enough, the tweets and Facebook updates stopped.

Egypt has lost its way, and brands, campaigns and movements won’t help.  With each campaign, the Brotherhood and the military-backed government included, Egypt becomes more fractured and each party takes away the support of a smaller fraction of the population.

True recovery will come when the PR tools are put down and politicians prove they are civil servants organising along an economic revival. 

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:

Libya Business News
Libya Business News

The Wrap: Egypt Labour Disputes Threaten Recovery, Syria Tries to Close Import Gap


– This morning the government statistics agency, CAPMAS, published figures that show annual consumer inflation slowed to 9.7% in August, from 10.3% in July reflecting easing pressure on the currency. The pound has actually been appreciating slowly in the last month but as Rebel Economy has signalled before, that doesn’t mean the currency is strong.

– BG Group Drops Most in 10 months on Egypt Delays Bloomberg 

Remember that good news yesterday on BP’s gas discovery in Egypt? Well news that another British oil company, BG Group, is suffering project delays in Egypt shows how fragile the country’s energy sector can be.

Here’s an excerpt from the Bloomberg story covering BG’s announcement:

BG Group Plc fell the most in 10 months in London trading after saying project delays in Egypt [and Norway, but cut that bit out here] will curb oil and natural-gas output next year.

The company was the worst performer on the FTSE 100 Index. Political turmoil in Egypt has forced BG to delay its West Delta Deep Marine project, it said today in a statement.

Though this is bad news for BG’s stock, it’s even worse for Egypt which relies on the oil and gas sector as one of the backbones of the economy. The last two and half years have seen Egypt’s debts to oil companies mushroom partly because of costly energy subsidies putting a burden on the government’s finances, and partly because of increased reliance on imports, that has depleted foreign reserves.

That has put many big oil investors in a quandary over whether to continue pouring money into Egypt. Apache, on the of the largest foreign investors in Egypt, has already agreed to sell a 33% interest in its Egypt operations

– Dismissed trade union members threaten to file complaint with ILO  Egypt Independent 

Meanwhile, discontent is brewing in Egypt’s labour sector, where the new manpower minister Kamal Abu Eita has kicked up a storm by firing members of the Egyptian Federation of Trade Unions, including its head Gebali El-Maraghi.

Media reports suggest the dismissals happened because some members were part of the Muslim Brotherhood and continued to support the former Islamist president Mohammed Morsi. Others say a new amendment to a law meant the board had to be dissolved.

What is clear is that these internal tussles do not bode well for the labour movement, which is a critical element of a transitioning Egypt. 

– Qatar agrees to convert $2 billion into Egypt bonds: Reports – Ahram Online 

In a sign that Qatar will continue to support Egypt, it has agreed to convert another $2 billion into Egypt bonds, after converting $1 billion into three-year bonds in July, and $2.5 billion into 18-month bonds in May.

The bond purchase is one way of supporting Egypt’s widening budget deficit, which is close to 14% of GDP. With Qatar a strong supporter of the Brotherhood, it looked like it may withdraw aid after the ouster of Morsi, however, it also has close to $8 billion invested in Egypt, and that doesn’t include several corporate deals worth much more. In June of last year, Qatar agreed to back Citadel Capital’s subsidiary, Egyptian Refinery Company in a deal worth $3.7 billion.

  • LIBYA 

OMV “Halts Libyan Flows” – Libya Business News 

Protests in Libya have reportedly forced Austrian oil company, OMV to halt production. A company spokesman told Reuters:

OMV’s production in Libya, which was largely unaffected by the events of the last few weeks, has now been shut in as events have spread to the west of the country … OMV is closely monitoring the situation.

It is estimated that protests has led to a 30% decline in oil production, which is massive for a country that is so reliant on its oil. The government has been forced to import fuel to keep power stations running while queues grow at petrol stations.

Protestors are asking for more pay and calling for greater regional autonomy, which is difficult considering the government’s monopoly over oil.

But there could be some solution at a hearing this week…

– Libya Congress to hear proposals on oil deadlockReuters 

The crisis committee tasked with resolving Libya’s oil paralysis will brief the 200-member General National Congress by Wednesday with proposals on how to end the confrontation, Reuters reports.

A solution to the stalemate between the government and tribal mediators is becoming more critical. Last week, Libya’s oil output hit a post-war low of just 150,000 barrels per day compared to its capacity of 1.6 million bpd. 

  • SYRIA 

Syrian pound depreciates as talk of US strike grows – Syria Observer 

Unsurprisingly, this story, translated from Syria’s economic magazine, Iqtissad, indicates that traders expect a “dramatic rise of the US dollar against the pound if the US Congress votes  ‘yes’ to military action”.

With indications from Obama this morning that the US could pause any plans for attack on Syria, the pound could see some short-term respite.

A black market dealer said the Dollar could be worth as much as 350 Syrian pounds if Congress agreed to strike. But even without a strike, inflation is still plaguing Syrians who are now spending four times as much on staple goods. Syria’s official inflation rate has continued to increase though it still remains below unofficial estimates.

Syria looks to buy 135 thousand tons of rice after August tender closed without a deal – Syria News 

Syria’s Foreign Trade Organisation has opened another tender for rice as it struggles to keep up with demand. Sanctions and soaring inflation has hit the country’s economy. 

It needs at least 140,000 tons of rice a year to cover demand, according to the report.

Even as this report came out, Jordan announced that it would cancel agricultural imports to Syria due to the escalating violence.

Radi Tawarneh, Secretary General of the Jordanian Ministry of Agriculture, said Jordan had already made significant losses in its agricultural sector as a result of the Syrian crisis in the range of 80 million Jordanian dinars.

This will deprive Syria of about 180 thousand tons of fruit and vegetables, according to the report. 

The Wrap: Morsi Wealth Investigated, Libya Public Sector Wages Up 20%

  • EGYPT 

– Egyptian authorities examine Morsi family wealth – Ahram Online 

The ousted Islamist president is accused of taking advantage of his position, as well as squandering LE2 billion ($285.7 million) during his election campaign. Egypt’s Illicit Gains Authority, the organisation that has thus far failed to follow through on most of its investigations against Mubarak-era politicians and businessmen, is among the entities leading the investigation.

Unfortunately, the IGA along with Public Funds investigator and the half a dozen or so other “investigation committees” have demonstrated that they are driven more by politics rather than a genuine desire to crackdown on illegal transactions and wipe out corruption. Many former officials of the old guard linked to corrupt dealings have got away with dismissals, retrials and prolonged case hearings.

This investigation will probably cost as much as Morsi is thought to be worth. Even so, it is small fry compared to the billions of dollars lost in Egypt’s deep web of corruption. 

– BP Egypt announces new gas finding in North Damietta – Egypt Independent 

Finding gas is different to developing it. At the moment, it is costing energy companies more to retrieve oil and gas because the oil ministry is behind on payments to companies like BP.

It’s possible that even if this gas was developed, BP would sell it off to a third party, depriving Egypt of much-needed gas. 

– Global Competitiveness Ranking 2013-14 – Egypt comes 115th – World Bank 

It’s no surprise Egypt is among the least competitive countries in the world considering the difficulty in doing business right now (and it was difficult before the revolution!).

Egypt’s competitiveness ranking was worse than Ghana, Bangladesh and Nepal, but it managed to squeeze past Yemen and Pakistan, which isn’t saying much.

But it’s not all bad news….

– Is Egypt at risk to a freeze in capital inflows? – Economist 

This useful Economist chart linked to above shows that Egypt is, quite remarkably, not among those emerging markets most at risk of a sudden freeze in capital inflows, unlike Turkey (at Number 1 risk) and Brazil.

That’s probably because foreign direct investment to Egypt has been low for some time, and because of billions of dollars of Gulf funding that has somewhat kept the current account deficit at the same level. Plus Egypt’s external debt hasn’t skyrocketed as much as expected (again due to “gifts” from the Gulf and favourable loan terms), meaning the risk of default is lower.

  • LIBYA 

Public sector wages to rise 20% – Libya Herald 

This is part of the Libyan government’s plan to remove the subsidies on commodities, so that individuals can afford higher prices for fuel. But it’s also an attempt to crackdown on employees with multiple salaries in public sector positions.

Now that may look positive at the outset, but ultimately, spending more on salaries to cut salaries doesn’t make much sense. In a way, this is really a way to appease citizens, at a time of a lot of strikes, by handing out more cash. But, as we have seen in other Arab countries going through transition, people will not settle for money until long-term problems are solved.

The government should for instance focus on diversifying the economy and creating jobs away from oil.

The Wrap: US indebted to Egypt, Libya Lawless and In Economic Ruin

  • EGYPT 

– US faces substantial losses if Egypt aid halted Reuters 

Finally a story that reflects pragmatic ties between the US and Egypt that go far beyond the politics. Washington has been considering whether to continue its US $1.23 billion in military assistance, but while the aid institutionalises the political links between the two countries, the money at stake is arguably much more costly if this bond was broken.

A particularly talkative senior Pentagon official told Reuters:

“There’s a whole bunch of contracts out there. The bills keep coming in and we’ve got to be able to pay them somehow otherwise we go in default.”

Apparently last year, when the Obama administration decided to continue military aid to Egypt despite its failure to meet pro-democracy goals, US officials cited as one of their reasons the fact that the termination costs could have exceeded $2 billion. 

Egypt foreign currency reserves inch up to $18.91 billion – Ahram 

Reserves crept up by $34 million in August to reach $18.91 billion, the Central Bank of Egypt said, reflecting how billions of dollars of cash from Saudi Arabia, the United Arab Emirates and Kuwait was used to defend the currency’s value and pay for imports.

Last month, international reserves jumped $4 billion to $18.88 billion after Gulf countries injected $12 billion in aid. But the minimal increase in foreign reserves this month shows how much of that cash is being used to plug financial gaps. 

  • LIBYA 

Libya has moved into lawlessness and ruin The Independent 

A round-up of how Libya has slumped into its worst economic crisis since the fall of Gaddafi. The key reason is that Libyans are increasingly at the mercy of militias who are dictating the direction of the economy.

But in addition, “one of the many failings of the post-Gaddafi government is its inability to revive the moribund economy,” the author says. “Libya is wholly dependent on its oil and gas revenues and without these may not be able to pay its civil servants.”

This report on Libya’s economy, that Rebel Economy linked to earlier this week, sets out a handful of priorities for the government to avoid falling into economic crisis. One of those is to diversify the economy away from oil.


Making the Most of Gulf Aid to Egypt

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

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.