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Is The Military Good For Egypt’s Economy?

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.



The Honeymoon Is Over

“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.



Morning Wrap: ‘Tehran on the Nile’

If there’s one analysis of the ongoing political situation in Egypt you should read today, it’s David Gardner’s piece in the Financial Times. He appears to buy the theory that there was a mutually beneficial deal between Mohammed Morsi and the younger officers that were appointed to the top of the Supreme Council of the Armed Forces, where the president gains politically from being seen as “leeching” power from the military and the commanders preserve their interests. He poses the question: “But is Cairo now set to become a Tehran on the Nile, as some US commentators are warning?”

The answer, he says, is that SCAF will still use their powers to prevent “a sharia-based, Islamist state in Egypt”, even while “the Brothers are expected to do well when new parliamentary elections are held, and the constitution, still to be drawn up, will reflect this make-up”.

The Brotherhood, founded in Egypt in 1928, is a patient organisation. Having waited more than 80 years, it will doubtless see no need to rush things now. 

No doubt, they are a patient organisation. But everyone will be watching closely when he travels to Iran later this month. This is a historic visit and will give a signal of where foreign policy is going in Egypt, a key factor for businesses operating here because it will have ramifications on foreign trade agreements.

Things are looking rosy in Saudi Arabia, which overtook Russia as the top producer of oil during June.

Libya took a big step back from a path to stability yesterday with three car bombings on one of Tripoli’s main thoroughfares, Omar Mukhtar Street, killing two people. The same street houses many hotels – including the businessman hang-out Thobacts – and connects directly to Liberation Square. I’m sure that many business delegations will think twice about any imminent visits. The government said it had arrested 32 Qaddafi loyalists.