To save what remains intact of Egypt’s economy and attract investment
Once Mohamed Mursi was inaugurated as Egypt’s president some four weeks ago, the Egyptian stock market reacted with jubilation. Stock prices rose significantly, marking a vote of confidence in upcoming stability. It took less than two weeks, however, for the market to see a sharp fall following Mursi’s decree on 10 July to reinstate parliament, a reversal of the earlier SCAF decision to enforce a court ruling. Within the first few minutes of the announcement the exchange lost EGP12 billion, proving that the stability of the State’s economy is closely associated with its politics.
Will the Egyptian economy be able to withstand this constant instability? And will foreign investments ever return to Egypt? Watani attempted to find answers to these queries.
Reassure the Egyptian investors
“Since the 25 January 2011 Revolution, Egyptians have been living through an ongoing economic crisis,” says Mukhtar al-Sharif, economics expert and professor at Mansoura University. “Our last hope of stability was a new president in office. But there appears to be no end in sight to the spiral of problems and the general discontent Egypt is encountering. This directly increases the difficulty of achieving the economic stability needed so badly to bring back foreign investment to Egypt; or at least to persuade Egyptian investors not to liquidate their businesses.
“Just take a look at a single industrial area in Egypt, the 6 October satellite town west of Cairo,” Dr Sharif says, “the industrial part of the town houses some 1500 large factories and another 1000 small industries. More than 500,000 workers are employed at producing vehicles, ceramics, furniture, electric appliances, ready-to-wear garments, foods, and many other things. Some 90 per cent of the industrialists there suffer from escalating debt owing to the economic crisis. Yet they are still surviving, refusing to close down or relocate in another country. Egypt should move urgently to reassure these Egyptian investors and try to keep them here. Otherwise, we all stand to lose heavily.
“The Muslim Brotherhood, to whom President Mursi belongs, have a programme which centres in essence on trade, not on agricultural or industrial activity. The Islamists reject loans from the International Monetary Fund (IMF) on grounds that they carry a taint of usury, yet are not clear about how they can provide funding for their plan to improve economic conditions and raise living standards.”
All this, according to Dr Sharif, does not bode too well for the future. First and foremost, he says, we need to maintain what agricultural or industrial activity has managed to survive till now, by bringing back security to the streets and stability to the country. This should directly have the effect of reviving our economy.”
Strong policies needed
Mahmoud Hussein, an economist and former general manager of the Arab Investment Bank, confirms that confusion in political decisions is deepening the state of instability, and the consequent negative repercussions on the national economy.
“The cash flow which comes from tourism has been on a strong decline since the January 2011 Revolution, meaning that foreign reserves have sharply fallen,” Dr Hussein says. “This means that the country’s ability to import necessary commodities is severely impaired; Egypt has had to borrow some USD one billion from ‘Islamic associations’ to buy petroleum products and food supplies. This will push us into a dark tunnel.”
In total agreement with Dr Sharif and Dr Hussein that contradictory political decisions will lead nowhere is Rashad Abdou, professor of economics and political science at Cairo University.
“The abc of economics says that stable policies and legislation are pre-requisite for investment to thrive,” he says. “But what is going on in Egypt today sends out the signal that the climate is unfriendly to investment. We need strong policies on the part of the president and a new government to get production back on track. Otherwise, we risk a ‘revolution of the hungry’ which will ruin whatever has remained intact of this country.”
WATANI International
29 July 2012