EGYPT’S NEW ECONOMIC MODEL?

, Business

Egypt-Economy

What lessons can we take from Egypt from the activity of the last two years? Step 1: take $8bn in aid from a Gulf potentate. Step 2: coup. Step 3: take $8bn from another Gulf potentate. Rinse and repeat as needed?

So it seems such is the case. Egypt’s political flux has created a black canvass once again to start again and formulate a different economic model. With the fall of the Muslim Brotherhood and a shifting power base, opportunities avail themselves for the creation of new, possibly more, progressive policies.
There are also opportunities to renegotiate international relationships, strengthening weak ones while maintaining strong ones. In this rejig, the economy, the economy, the economy (stupid!), becomes the point of departure on which Egypt has to build upon.
The proposed $8bn from the UAE and Saudi is very welcome and is equivalent to the total of Qatari support (which has now largely been converted to bonds listed in Ireland) and should be enough to see Egypt through to elections in around 6 months time. This should ease up Egyptian Pound liquidity issues and we may now have a window of relative peace as Ramadan kicks off – tough to protest too loudly when you can’t drink water for 17 hours a day.

There are still significant hurdles to overcome;  for example, the new constitutional declaration has been rejected by the National Salvation Front, Muslim Brotherhood, Salafi al Nour and Tamarod, which I suppose is at least some sort of consensus. Additionally, more footage is surfacing of security forces deliberately and calmly targeting protesters with live ammunition who were not fighting back, which is likely to increase national resentment.

Saudi Arabia increasingly looks to have been a key driving force behind recent events,  particularly given the strong ties between them and General Sisi and President Mansur. The increased influence of the Salafis – odd given their far higher level of conservativism and lack of belief in democracy – weighs heavily towards Saudi’s favour.  The UAE is also happy having sentenced 69 Muslim Brotherhood members to jail for up to 15 years for a coup attempt last week.

It is worth noting that prior to 2011 the UAE was the top FDI contributor to Egypt, something that has dried up since. The UAE and Saudi may now step in to replace the $19bn of proposed Qatari FDI over the next 4 years that is now at risk, with Masdar of the UAE already announcing plans for a $500m wind farm, presumably like the one they built in record time in the Seychelles recently.

Qatar has suffered from this and will focus increasingly on domestic growth given the new Emir, it’s failure in Libya and the change of leadership of the rebellion in Syria. Al Jazeera is under constant, organised attack building on high levels of nationalistic and somewhat xenophobic sentiment with even other journalists heckling them until they left yesterday’s press conference with the security forces.

These sentiments have also led to increasing polarisation on the streets with  outcry over the 50 Muslim Brotherhood members killed on Monday minimal, and some rather unpleasant suggestions by many who campaigned against similar army actions on occasions such as the Maspero massacre, which had half the casualties. One hopes this fissure does not widen further as it will be a key drag on Egypt if we start to see general strikes and terrorism from splinter groups.

The agreed upon appointment of  Hazem El Beblawi as new Prime Minister is a good step as he likes to compromise with everyone (he actually resigned after Maspero ). In terms of his outlook, he is very much a liberal economist and believes in floating currencies/steady devaluation and international aid. He is also against relying on rentier flows and subsidies.

A key concern are potential attacks against tourist centers by splinter groups. Tourism is a major part of the Egyptian economy accounting for nearly 25% of the economy.  Instability, mass protests and wanton shooting hardly affords holidaymakers a pleasant getaway . One needs to remember with Algeria  that groups can quickly re-radicalise and it doesn’t take many people to cause an almighty mess, as Al Qaeda chief Ayman Zawhiri showed when he plotted the 1997 Luxor attack for a splinter of Al-Gama’a al-Islamiyya when the main body had actually renounced terror. Fingers crossed fears on this aspect remain unfounded.

Leave a Reply