The judge made his final call today, confirming the death sentence of former Egyptian president Mohammed Morsi, a crucial step in cementing the counter-revolution and the unravelling of the uprising that had brought him to power.
Morsi, who is now already serving a 20-year jail term for ordering the arrest and torture of demonstrators in 2013, was convicted of breaking out of prison during the 2011 revolution against the Mubarak regime. He has never denied that he broke out of prison, but why it merits the death penalty is hard to comprehend, particularly because he was being held in that prison without charges in the first place. The Grand Mufti of Egypt still has to confirm any death sentences.
Morsi was one of thousands that took advantage of a mass escape of prisoners from Wadi Natrun prison in the north of Cairo during seemingly lawless days at the start of the uprising.
Although we’ll never know exactly what happened in Wadi Natrun during those turgid and chaotic days when all eyes were on Tahrir Square, Rebel Economy can offer a rare peak.
What follows is a complete translation of the testimony of former intelligence chief Omar Suleiman during the trial against Hosni Mubarak. Suleiman, who died in 2012 at an American hospital, gives his account of what happened during those historic 18 days following Mubarak’s deposal, including Morsi’s prison break.
The huge disclaimer is that this is wildly biased against Morsi, but still, it is amazing how current these views sounds. Back in 2011, the idea that foreign powers conspired to cause an uprising in Egypt was considered preposterous by just about everyone but the so-called “Feloul”, or remnants, of Mubarak’s National Democratic Party. Now, these views are much more widely held in part due to the widespread efforts to undermine every detail of the Morsi regime.
As with all testimony from legendary spymasters, read with a grain of salt.
Here it is in English – this is a professionally translated transcript of the Omar Suleiman’s testimony.
Please cite a reference to Rebel Economy if you are reposting or referring to these documents.
Could Egypt’s economy be on the road to recovery?
Some indicators suggest this might be the case. According to Reuters:
Egyptian business activity shrank for the 13th month in a row in October but at a much slower rate, suggesting the economy may be improving after months of renewed political turmoil.
The seasonally adjusted HSBC Egypt Purchasing Managers Index [PMI – which is an indicator of the economic health of the manufacturing sector] for the non-oil private sector rose to 49.5 points in October, up from 44.7 points in September and moving closer to the 50 mark separating growth from contraction.
In other words, readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
This handy graph from Capital Economics shows what’s been happening with Egypt’s PMI:
Economists at Capital Economics say that “at face value, the rise in the Egyptian PMI would suggest that, following several months of disruption to activity caused by July’s “second revolution”, the economy is starting to recover.
But that’s really all it is, “face value”, because below the surface, Egypt’s economic problems remain a menacing backdrop to any political tensions that unfold and a reminder that no leader can succeed without acknowledging that difficult decisions need to be made.
The reliance on Gulf money has cornered Egypt into spending a lot of political capital without reaping the benefits of economic reform, economist Anthony Skinner writes in the Financial Times:
Unlike the much-maligned and ultimately rejected IMF Stand-By Arrangement, the lenient terms of Gulf aid mean that Egypt is not hamstrung by conditionality; at least not directly. A square in Luxor has already been named after King Abdullah of Saudi Arabia in recognition of his generosity. Some Egyptians part-jokingly fret that the pyramids will be next.
The trial of former Islamist president Mohammed Morsi this week was partially brought about because of Mr Morsi’s failure to address mammoth problems in the country: joblessness, rising inflation and untenable subsidies that are costing more than the country can manage.
Once the inexperienced Muslim Brotherhood was out of the way, supporters of the coup expected the caretaker government to act immediately by expediting structural reforms necessary to relieve pressure on the deficit and free up the economy.
However, the theatrics of Egyptian politics has detracted from any serious issues.
The trial of Mr Morsi has became more about the power struggle between the army and the Brotherhood rather than the charges that were brought against him. The army’s petty grudge against comedian Bassem Youssef has busied the minds of Egyptians, rather than the creeping xenophobia driven partly by populist nationalism.
And God forbid if a politician were to attempt to bring up the notion of “compromise”, because he will likely be branded a traitor for giving in to the opposition.
The Egyptian government has come up with a $3.2 billion “stimulus package” that is unrealistic, in that the plan is based on spending as much as possible while simultaneously ignoring that the country cannot have a healthy, streamlined economy unless cuts are made and taxes are overhauled and collected properly.
It has also launched “Egypt 2022”, which in economics we call a complete joke.
Other than omitting the glaring detail of how the government plans to finance this multi-billion dollar investment plan, there is no discussion of how the interim government will achieve its ambitious growth rate targets. Instead, ministers have said the plan “focuses on building a strong and disciplined economy based on social justice, characterised by diversity and openness to the outside world.”
This isn’t a Miss World contest, and we’re not asking for world peace or prosperity. Egyptians are impatient and are wondering when vague rhetoric will translate into solid, targeted actions.
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.
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.
That’s the short answer. Here’s the long one:
I’m afraid Egypt still has a long way to go before we never experience a power cut or experience gas shortages again.
The country’s fuel shortages seemed to have miraculously disappeared, just as Islamist president, Mohammed Morsi was overthrown. There were no gas lines and suddenly no electricity cuts:
“We went to sleep one night, woke up the next day, and the crisis was gone,” Ahmed Nabawi, a gas station manager told the New York Times.
Supporters of the interim government predictably seized on this saying the “improvements in recent days were a reflection of Mr. Morsi’s incompetence, not a conspiracy,” according to the NYT story. While the former president is guilty of a lackadaisical approach to the economy, there is little truth in this. It looks more like severe wishful thinking shared by Morsi’s opponents after his ouster.
First of all, there have in fact been power cuts and long queues for gas since Morsi’s ouster. I experienced a power cut myself yesterday and I’m lucky enough to live in the quite pleasant island of Zamalek. Journalists who travelled to the Upper Egypt city of Beni Seuf in recent days also witnessed extended queues for gas at petrol stations there.
The second point, a technical but very important one, is that much of the gas used in cars is actually refined locally. It is not imported from other countries, so any explanation that has attributed the queues to fill up gas tanks to the wider economic downturn is inaccurate. Egypt imports gas and other types of energy products for factories, businesses and power stations, not for cars.
Thirdly, for those conspiracy theorists out there, it is very likely that the Gulf money to Egypt was part of quite a substantial reward arrangement. Therefore, the removal of Morsi would have seen the $12 billion (which includes a hefty supply of badly needed oil products) from Saudi Arabia, the United Arab Emirates and Kuwait funnelled through a few days earlier than it had been announced, lessening pressure on demand for energy locally.
Fourthly, the simplest answer is usually the right one.
Did anyone consider the fact that as millions of Egyptians took to the streets, very few people were actually at home or at work using electricity or filling up their cars? It is rational to expect that with business pretty much at a standstill on the anniversary of Mohammed Morsi’s presidency, the demand on domestic energy was actually quite low, meaning we were in a comfortable position for the days leading up and after his ouster. Electricity-generating power stations are by and large run with natural gas, and with demand much lower for that week, it’s likely the capacity would not have been overcome as it has in the past.
There are other “theories” out there that suggest the Army used its own funds to pay for fuel, and “Saved Egypt”. Groups blamed each other.
Some liberals suggested that the Muslim Brotherhood was behind the fuel shortage as an attempt to demobilise the masses and prevent large demonstrations from forming. But others who served under Morsi said there was a conspiracy to create a crisis from the opposition:
“This was preparing for the coup,” said Naser el-Farash, who served as the spokesman for the Ministry of Supply and Internal Trade under Mr. Morsi. “Different circles in the state, from the storage facilities to the cars that transport petrol products to the gas stations, all participated in creating the crisis.”
Forget these hypotheses that are not proved and will probably remain that way.
What is clear is that the country’s addiction to subsidies is still very much a problem, and that this eclipses every single theory on how shortages may or may not have started or ended. Of course, Mohammed Morsi made many mistakes, as detailed here.
But Egypt, has for a long time, bought energy products at international prices, and sold these locally at a severely subsidised price, costing the nation billions of dollars (in fact energy subsidies swallow up to a quarter, and increasingly more, of the budget – more than what is spent on health and education combined).
Not only is this an expensive way of distributing subsidies, but the system is not targeted so effectively everyone gets cheap fuel – and the rich naturally consume more of it, leaving the poor still in need. Add to that, Egypt has actually begun consuming more energy than it is producing, exacerbating the problem. This problem may have been inherited by Morsi, but it is not his fault.
The painful truth is that when a new government convenes, it will be up against the same debilitating problems that Morsi’s administration was having difficulties with. Nasser created subsidies, but neither Sadat nor Mubarak or Morsi would touch them.
Who will dare to be the fact that is associated with these reforms?
Instead of focusing our energy on these pointless theories that are fabricated by those who are greedy for power, the interim government should focus on how to relieve pressure building up as a result of this system soon, before Egypt experiences another bout of shortages which will no doubt be blamed on one unsuspecting group.
That’s a question I put to around a dozen Egyptian businessmen over the weekend, all of whom responded with a resounding “Yes”.
Here’s some snippets of conversations I had with a few of Egypt’s business community over the weekend (some appeared in this story for The National newspaper):
Nassef Sawiris, billionaire and head of Egypt’s biggest listed company, Orascom Construction Industries: The previous government had lost all economic ties with the majority of Arab Gulf governments and tourism has suffered tremendously because of conflicting messages [from the former Islamist administration]. This one of the biggest failures and resulted in a decline in foreign reserves. I hope the new government will be inclusive to all Egyptian political sectors.
Mahmoud Abul Eyoun, former governor of Egypt’s Central Bank: I’m very optimistic. We need a government to set the priorities for solving the internal and external imbalances. Rebulding the confidence among the Egyptian business comminity will create momentum for attracting foreign direct investment and portfolio investment.
Alaa Arafa, chairman of Egyptian clothing conglomerate Arafa Holding: The economic situation will take at least 6 months after the violence stop to show some signs of improvement. Everybody is ready to pay the price of freedom. The army is a great support to the people.
Mohammed Badra, board director at Banque Du Caire (Egypt’s third largest commercial bank): All of us are very happy, because at least we can see a light at the end of the tunnel. I think the army will guard the implementation of the road-map. We are hoping the security situation will improve and tourism returns so that we can have an improvement in the [credit] rating of the country.
For many businessmen, the military-backed political transition gives the country its best opportunity since 2011 to create a technocratic administration that has the expertise to tackle Egypt’s economic problems and lure back investors.
This says more about the failures of former president Mohammed Morsi, who was widely accused of doing nothing to prevent a looming economic collapse, than support for the military.
Still, the unwavering optimism that the military’s actions were good for Egypt’s economy, was astonishing (especially in light of the divisive atmosphere today as a result of the tragic killing of 42 Egyptians).
The early signs look promising: the stock exchange made its biggest gains all year, rising 7.3%, the long queues for fuel seemed to have miraculously disappeared, and the hope that an economist (now slated as London School of Economics-educated Ziad Bahaa El Din) would be made prime minister shook off any doubt that the army was overreaching its role.
In fact, the stock market rose only because of positive sentiment from local traders, while foreign investors sold heavily. Meanwhile, Egypt’s fuel crisis has not gone away and remains a genuine problem, but the panic that drove thousands to fill their tanks has subsided. And the business community is still holding its breath and counting on the army to keep to their strict six- to eight-month timeline for a handover to a civilian government.
It’s unclear who is calling the shots here and uncertainty is no good for business.
The only silver-lining to the removal of Morsi is that negotiations with the International Monetary Fund had hit a stumbling block and perhaps, with the Muslim Brotherhood’s political arm, the Freedom and Justice Party out of the way, some progress can be made.
Over all however, Egypt’s economic outlook is much worse than it was a week ago. Credit ratings agency Fitch became the latest to downgrade Egypt, saying political tensions are likely to set back the country’s economic recovery.
Egypt is unlikely to exceed growth of 3% next year, analysts at Fitch say.
It is baffling to see so many high profile businessmen and women describe what is happening as a positive for the country. The military merely seized on an opportunity to overthrow an elected president in a coup (yes, some of you disagree, don’t shoot me) which has created more division than any time under Mohammed Morsi.
“Let us savour the moment now, and we’ll worry about the future later,” some Egyptians said yesterday hours after Egypt’s military had ousted the country’s president Mohammed Morsi.
Led by General Abdul-Fattah el-Sisi, the army – backed by the heads of Al Azhar, the Coptic Church and Mohamed ElBaradei – moved swiftly and confidently to suspend the country’s Constitution and create an interim government. Crowds erupted in cheers and screams.
Some say the military was working on behalf of the people of Egypt and that the country’s first democratically elected president had to go. Others say the army’s decision was carefully orchestrated, and cannot be described as anything but a military coup.
But as the jubilant atmosphere of Tahrir Square begins to fade, there is one certainty: Egypt’s economy must be made an absolute priority, or risk repeating this scenario in another 12 months.
This is really a mirage. The immediate gratification gained at getting rid of Morsi is at the expense of solving the basic bread and butter problems that helped push Egyptians onto the streets in the first place.
For example, resolving Egypt’s ever-increasing budget deficit, finally getting over a costly addiction to energy subsidies and actively creating jobs for the 1.2 million Egyptians who lost a job under Morsi (and the millions more who have been seeking formal employment).
Whoever takes over the helm inherits these problems and will likely meet a public backlash to any reforms. The economic challenges have not gone away just because a Muslim Brotherhood leader was booted out.
In fact there are many more questions now lingering:
What of the $4.8 billion loan from the International Monetary Fund? Egypt still desperately needs this but the last time the army was in power (in June 2011), the loan was refused because it was considered too much of a public debt burden. Fast forward two years and you have an intractable crisis made worse by the fact international lenders won’t touch Egypt until this loan is signed.
Also, Egypt currently has no constitution: is it even possible for the IMF to sign a deal with a country with no governing charter?
What of the the billions from vehement Muslim Brotherhood ally Qatar? Will the Gulf state pull out now that the Brothers are gone? As Emad Mostaque, strategist at Noah Capital Markets says:
[There are] big question marks over $8 billion of existing Qatari cash being rolled over in a couple of years [and] $19 billion of pledged foreign direct investment in next 4 years (more than everyone else put together over last five [years])
Egyptians may be celebrating now, but hardship is yet to come for the poorest Egyptians who need immediate reforms, and the price we have paid for accepting the military’s aggressive move will no doubt set the tone for the next few months.
A national speech can be a powerful tool for a political leader.
When written and delivered correctly, a speech plays a critical role in national development and politics. Leaders have come to rely on the spoken word to influence and mobilise followers and convince people of the benefits of their leadership.
Charlie Chaplin’s speech, in the finale of The Great Dictator, is an enduring example of a powerful speech: “Soldiers, don’t give yourselves to brutes, men who despise you and enslave you, who regiment your lives, tell you what to do, what to think and what to feel, who drill you, diet you, treat you as cattle, as cannon fodder! Soldiers, don’t fight for slavery, fight for liberty!”
But a good speech doesn’t always made good policy.
So when we are confronted with the ramblings of Egypt’s president Mohammed Morsi, which was at best defiant, at worst “meandering“, “boring” and too lengthy (his speech lasted nearly 3 hours), we can only surmise that the president seems to be missing both a good speech writer and a good policy.
Although he extended an olive branch to the opposition, and admitted he had made mistakes (without detailing his errors because what politician would do that?), Mr Morsi largely came across as defensive and shrill by attacking “enemies” he accused of undermining the democracy.
The biggest failure of the speech, however, was how little time the president dedicated to the country’s economic problems. A line or two were dedicated to reassurances of cutting unemployment and raising the minimum wage but this was quickly followed up with his tell-tale defensive tactic, by blaming opponents for the instability that has driven the economy into crisis.
Worse still, the country is in the middle of an acute energy crisis. As Mr Morsi spoke, miles-long queues were building up for gasoline. As Ben Hubbard of the New York Times put it:
“Ideology and politics had little place on the gasoline line, where tempers flared in the stagnant heat of the night.”
Again, Mr Morsi acknowledged the seriousness of the situation by saying he would empower ministers and governors to crack down on illegal sales and to remove those benefiting from the crisis. He said he would remove the license of any gas station found to be hoarding fuel.
But are these solutions or just another defense mechanism? Because as far as the government and the presidency is concerned, the energy crisis has been exacerbated by rumours, corruption, hoarding and smuggling (partly by Gazans), not the fact energy subsidies are completely mismanaged and have cost the country billions of dollars (Rebel Economy has written a lot on this including here and here and here).
How could corruption levels spike so suddenly to cause these queues? Are fewer than 2 million Gazans really capable of impacting the fuel supply to 85 million Egyptians? Is the petroleum minister, Sherif Haddara, correct when he says the shortage is partly down to”technical errors” or that the government’s introduction of a new “smart card” system to prevent illegal gas sales had slowed distribution?
Some even say that the Muslim Brotherhood are using the gas shortages to their advantage ahead of the June 30 protests, by drying up the fuel supply to limit people’s movements and prevent large gatherings.
What is clear is that very few now believe anything that is said to explain the shortages, causing more panic and longer queues as more Egyptians seek out fuel.
Mr Morsi misused a powerful tool, and instead of regaining credibility in his speech, he talked too much yet said very little of any significance. He is likely bracing himself for a backlash on June 30 when thousands will gather against him.
How did Egypt’s economy survive before the revolution considering it was a ticking time bomb?
Why have energy subsidies, which swallow a fifth of the budget, only become a financial burden now?
What has changed?
The following hair-raising chart from London-based economist Ziad Daoud explains all:[caption id="attachment_1692" align="aligncenter" width="640"] Ziad Daoud[/caption]
Egypt’s economy has gone through a three-stage transformation, Daoud explains:
Phase 1: Before the Revolution
Foreign investments either through directly investing in infrastructure projects or buying factories, or financial investments into the Egyptian stock market or government bonds. These investments, up till the revolution that began in early 2011, were sufficient to cover the current account deficit (i.e., when a country’s total imports is greater than the country’s total exports, which can be dangerous if not kept in check).
As a result, the Central Bank of Egypt’s (CBE) reserves remained largely untouched and reached a peak of $36 billion at the end of 2010.
Phase 2: The Revolution
Three things changed after the Revolution.
1) First, despite the rise in remittances, the current account deficit grew larger mainly due to the fall in tourism.
2) Second, direct investments halted to near zero.
3) Third, foreign capital flows into the Egyptian stock and bond markets quickly reversed course and flowed out of the country (the light blue bar in the chart).
The changes put pressure on the pound but the currency was supported by the CBE’s intervention in the foreign exchange market using its international reserves. This meant reserves fell below the minimum safety level—estimated by the CBE to be around $15 billion—in the second half of 2012.
It also meant a change of strategy – the current account deficit and financial account deficit were now being financed by the CBE’s reserves.
Phase 3: After the Revolution
With international reserves all but exhausted, the government—loathed to accept a currency depreciation—started to look for alternative sources of external funding. It was during this phase that it reached a preliminary agreement with the International Monetary Fund (IMF) in November 2012 only to backtrack on the deal.
Instead, the government managed to finance the current account deficit with loans from Turkey, Saudi Arabia, Libya and especially Qatar. Most of these loans are in the form of deposits at the CBE, some of which can already be seen as the dark-grey bar in the chart and more are likely to show up when the CBE publishes the balance of payments figures for the latest quarter. Indeed, thanks to these loans the CBE announced last week that its foreign currency reserves had increased to $16 billion at the end of May.
Egypt is once again on the precipice of signing the IMF loan, saying a deal would be agreed by the end of this month. This could mark the Fourth Phase of Egypt’s economic transition, but as the government’s top advisor Essam El Haddad, complains to the Financial Times that it’s all the IMF’s fault, maybe we shouldn’t hold our breath…
While the economic impact of the revolution was not one that could easily be managed, the decisions to steer the country in the right direction could have been different.
Because, what does the above tell you?
It shows that every single cabinet elected after the fall of Hosni Mubarak, every prime minister and even the Supreme Council of the Armed Forces which coveted its role as a military caretaker government before President Morsi was elected in June 2012, have turned Egypt from an economy suffering because of its unstructured, inefficient welfare system, to an economy that is surviving on welfare – loans from others.
Isn’t it ironic, don’t you think?
In business, there are skills you learn to do well, and habits you must shed or you risk losing everything.
Suffice to say, the rules of what NOT to do have become critical in business today where a high percentage of companies fail.
Taking inspiration from Donald R. Keough’s book, ‘The Ten Commandments for Business Failure” and a blog post adapted from the book, Rebel Economy applies eight steps of “how to ruin a company” to Egypt’s economy and to the guy in charge, Mohammed Morsi.
You’ll find the list eerily familiar to the economic strategy (or lack of) in Egypt.
1. Don’t take risks
Rather than playing to win, the President plays to avoid losing. Walls are built to protect what he has acquired but it stifles development, new ideas and therefore growth. But while it is natural human behaviour to stop taking risks as soon as we’ve acquired something of value, President Morsi is in no position to take the safe road when the country’s economy, its people and future is at stake.
2. Be inflexible
The worst attitude the government can take is to believe that their formula for success is everlasting and that they will never need to change or adapt it. President Morsi, has for the best part of his tenure, chosen to muscle out any innovative ideas from the opposition and within his own Brotherhood team (the Renaissance project team, for one, has struggled to get any of its ideas off the ground because they have been consistently blocked by bureaucracy).
3. Assume infallibility
We call this hubris. The perception that Egypt is “too big to fail” comes from the dangerous presumption that the country is too important/too good/ too strong/ too strategic to fall. But thinking you can do no wrong, only breeds negligence and arrogance – a recipe for disaster.
Like the companies that fell during the 2008 financial crisis, and the European states that have fallen in the aftermath of the Eurozone crisis, Egypt is not immune to this unprecedented economic pressure.
4. Play the game close to the foul line
Playing the game close to the foul line is an approach to business (and life) where one tries to get away with as much as possible.
Sounds familiar doesn’t it? The most dramatic turning point of when this became obvious was in November 2012, when the President decided to honour himself with powers that exceeded those of the judiciary. He was literally above the law. Then, perceiving the negative reaction, he withdraw this decree only to announce sweeping tax reforms which he also reneged on.
Now that Egypt’s top court has ruled that the upper house, or Shura Council, and a panel that drafted the new constitution are invalid, Morsi’s credibility is further undermined. He is being shown up and that’s what happens when you try to cheat people.
5. Don’t take time to think
Which brings us to our next point. Rather than narrowing down and limiting the amount of information that Egyptians are given, the government has bombarded us with contradicting statements that are often retracted or never followed up.
It is the job of the President to take time to filter the barrage of information and reassure citizens. But then, if Morsi had done that, you wouldn’t be reading this now.
6. Put all faith in experts and outside consultants
When a leader does not think for himself and does not come to his own conclusions, he resorts to the advice of sometimes ill-informed “experts” and outside consultants. If you are wrong, you can make amends. If your experts are wrong, you have no way of knowing why they were wrong or how you can learn from the mistakes they’ve made.
Making significant deals with political allies (e.g., Qatar, Saudi Arabia, Libya, Iraq) that Egypt becomes dependant on, will eventually lead the same course.
7. Love your bureaucracy
This list is almost made for Egypt.
Yes, every country needs a solid infrastructure to help it function. But there is a fine line between setting up structures to help the people of a country to do their jobs better, and those structures becoming a barrier to progress.
8. Be afraid of the future
The underlying theme of Keough’s book is if you don’t take risks, you’re doomed to fail.
But one reason people do not take risks is because they are afraid of the future. The reality though is that it is the person who stops taking risks who should fear the future, not the one who continues to take risks.