WATANI International
26 June 2011
Recent figures announced by the ruling Military Council have placed the poverty rate in Egypt at 70 per cent. If this figure is true, economic experts expect a new revolution, that of the hungry. Prior to the 25th January Revolution, the experts say, the 40 per cent of the population living under the poverty line and mainly centred in rural Egypt had acquired the ability to accept and adapt to their poverty. Revolutionary winds, however, reversed matters; now non-acceptance reigns.
Bad name for businessmen
During the Egypt’s Post-Revolution Economy Seminar recently organised by the Public Union for Chambers of Commerce jointly with the Armed Forces, attendants stressed that if the current worker and employee strikes and walk-outs persist, Egypt’s economy will incur huge losses further to what it has already suffered.
Following the Revolution, Egyptian exports decreased by 40 per cent, and the national product of goods and services by 45 per cent. The currency reserve diminished from USD36 to 28 billion, and inflation rose to some 13 per cent. Direct foreign investment ground to a halt, and the internal debt rose to near a trillion dollars.
“The State is confused and the hands of bankers are shaking. We have been living through economic chaos ever since the Revolution,” the head of the Industries Union Galal al-Zorba told the seminar. The defamation campaigns and unsubstantiated allegations of treason levelled by the media at “corrupt” businessmen have strongly contributed towards hurting the economy and driving away current and potential investors.
“Only through regaining Egypt’s shattered security and stability, on both the economic and political levels,” he said, “can we override the current state of anarchy and attract investment.”
Budget deficit
According to Khaled Hefni, Dean of the Arab League’s School of International Transportation and Logistics, some EGP65 billion worth of investments are needed during the coming five years. In order for the current 10.8 per cent unemployment rate to go down to 5 per cent 900,000 job opportunities are needed annually.
“It is not yet known how the budget recently announced by the State would be financed, considering the current economic distress,” Fouad Abu-Steit, Professor of Economics at the Helwan University, pointed out. He described the recent decision to increase salary provisions in the new budget from EGP95billion to EGP116 billion, in order to finance the new minimum wage and appease the public, as “unstudied” and bound to increase inflation. Decreasing taxation would have helped the public without working so much damage to the economy, he said.
Negative credit rating
For her part, the economic expert Bassant Fahmy suggested that the unholy alliance of poverty and unemployment with religious mania and sectarian strife has severely hurt the economy. This translated, she said, into a halt to tourism, decreased production, increased unemployment, and a poor reputation for the Egyptian economy on international markets.
Egypt’s credit rating has been internationally degraded from stable to -3. In case the current instability persists, Dr Fahmy said, the credit rating might slip even further, especially after the Central Bank of Egypt (CBE) announced it has printed some EGP22 billion worth of banknotes since last January.
The negative credit rating has led world banks to refuse to finance Egyptian imports and, since the Egyptian market is an import-oriented market, prompted the spiraling prices of goods on the local market.
The increase of the internal debt, the budget deficit which has risen to 10 per cent of the GDP, the retreat in the currency reserve, and the shift in the budget from surplus to deficit are all very alarming signs, Fahmy reminded.
Sectarian loss
The loss in value of the Egyptian Pound is further compounded by the retreat in foreign currency revenue, of which tourism is the main provider, according to economic expert Mukhtar al-Sherif. This means prices are expected to continue their upward spiral, since industry inputs would inevitably cost more.
Dr Sherif pointed out that food prices will be the first to suffer since Egypt imports 54 per cent of its wheat, and the wheat reserves are expected to run out in a couple of months.
“Our main focus today,” Dr Sherif said, “is to get the production wheels to roll. Maximizing production is a national responsibility.” He denounced worker and employee protests which have paralysed the Egyptian economy.
The CBE’s attempts to prop the Egyptian Pound are detrimental in the long run, he said, and will inevitably deplete Egypt’s foreign reserves. They cannot be sustained.
Dr Sherif pointed out that sectarian attacks such as the recent Imbaba incident jeopardise attempts at re-starting the economy. Both tourists and investors are now wary of the turbulence on the Egyptian scene.