More than $6 billion was spent on campaigns that sought to prove how both candidates would attempt to turn around the deepest economic downturn since the Great Depression. It was Barack Hussein Obama’s night, and as the WSJ put it:
Mr. Obama’s victory in the bruising campaign marks a landmark in modern election history. No sitting president since Franklin D. Roosevelt in 1940 has won re-election with a higher unemployment rate, which stands at 7.9%.
The candidates emphasised the economy in aggressive campaigns that sought to reassure Americans how the country would be pulled out of its crisis.
It was in stark contrast to Egypt’s presidential campaigns, which failed to acknowledge the most pressing problems and papered over the economic challenges with vague rhetoric about social justice.
Hardly a word was muttered about the North African nation’s biggest economic challenges including the budget deficit, or how the presidential candidates would seek to reduce the almost 13% unemployment rate. The US victory shines a light on Egypt’s political inexperience and misdirected focus on religion.
◊ ◊ ◊
On that note: Egypt’s pound weakened on Tuesday to its lowest against the U.S. dollar since 2004, and traders and analysts speculated the central bank may have resumed a policy of allowing a gradual depreciation, Reuters reported. (That is despite common knowledge among traders that the Central Bank intervenes in the currency through state banks).
Egypt’s foreign reserves have hovered at about $15 billion, just above the critical level enough to cover three months of imports. But any increase in reserves has so far been superficial and down to international donors funnelling cash straight to the central bank to support the pound.
As London-based Capital Economics analysts said in a note to investors earlier this week:
Talks between Egypt and the IMF this month have focused attention back onto the external financing requirements of the region’s resource-poor economies. But so long as their oil-rich neighbours continue to drip-feed aid, we think they should be able to avoid full-blown balance of payments crises.
◊ ◊ ◊
In the clearest sign of Egypt’s energy problems, yesterday Orascom Construction Industries was forced to stop production at three fertiliser lines after the state gas company cut off supplies from a gas field for emergency maintenance.
Egypt, which is a net gas exporter, has been suffering more and more fuel shortages and electricity cuts due to growing domestic consumption. The country has had to re-direct gas for domestic use, that would have otherwise been exported.
Local media has reported talks between the Egyptian government and Qatar in the last few weeks to import liquefied natural gas to cover its needs. Algeria was also a possible contendor for the job.
It is a clear signal of how an addiction to energy subsidies has managed to infiltrate almost all parts of Egypt’s economy. Bankers tell me that the reason foreign reserves have declined, is not just to support the currency but to ensure Egypt has enough to keep importing oil and gas to keep its subsidy system running.
◊ ◊ ◊
In other news:
– Dana Gas, the first UAE company to fail to meet a bond redemption, said it had reached a restructuring deal “in principle” to repay a $1 billion sukuk, potentially averting seizure of its assets, Reuters reports.
Natural gas producer Dana, headquartered in the emirate of Sharjah, said it will cancel $80 million of the Islamic bond and sukuk holders will receive a part payment in cash from Dana as part of deal reached with an ad-hoc group of bond holders.
– Abu Dhabi Islamic Bank is set to become the first Gulf Arab company to issue a hybrid Islamic bond this week, but investors are likely to demand a big premium for the rare structure.
ADIB’s Tier 1 sukuk structure, which is expected to raise $500 million, is a different animal: it does not have a maturity date – hence it is “perpetual” – and the principal is repaid at the discretion of the issuer.
If ADIB’s issue is successful, it could pave the way for other banks in the region to follow suit, although the jurisdiction in which the bank is located will be important.